Epicor – Enterprise Aspirations & Competitive Landscape

What’s your assessment of Epicor and its evolution over the years? The firm is thought of as a vertically oriented ERP [enterprise resource planning] solutions company – I think verticalisation has been one of a handful of key themes across software for the last 3-5 years.

You referenced Epicor having a goal of being a modern ERP provider. Given the company is more than 50 years old, it clearly has a fair amount of legacy technologies, products and probably customers. How far along do you think it is in that quest to become a more modern ERP provider? Is it 75% or 50% of the way there? How do you quantify the specifics in terms of products, related revenue and the customers themselves?

You highlighted the importance of Epicor’s manufacturing and distribution products, and the related revenues. If you look at all the industries that the company focuses on – automotive, building supply, distribution, manufacturing and retail – one of the things they have in common is tremendous economic sensitivity. How do you think it is positioned and performing given today’s economic backdrop is seen as uncertain or approaching a deep recession?

What overall revenue growth was Epicor delivering during coronavirus? Was it well into the teens? I’ve seen indications that the revenue growth was 9% in FY22, which ended in September 2022. That seems to be a notable deceleration from what you characterised as boom times, to some extent, for the company’s demand and sales that were well into the double-digit percentages. Is mid-single digits the right way to think about the revenue growth trajectory over the last couple of years?

M&A has been a significant and recurring theme for Epicor and I read that the company is targeting roughly one acquisition per quarter, which can obviously vary in terms of size, impact and so on. Is that consistent with how you think about its M&A framework? Why might it be prioritising 1 EDI and KBMax vs the numerous other deals?

Do you see Epicor slowing in terms of M&A? The company was still somewhat active in 2022 and has already done a deal in 2023. There’s one theory that having done a bunch of deals, it might turn inward, so to speak, and focus on the things you highlighted – integrations and bringing the solutions and elements of the teams together. Alternatively, do you think it is more inclined to see opportunities given the market environment?

You referenced that Epicor is an ERP software company at its core, notwithstanding all the different verticals and acquisitions. My sense is that the way it has been building through M&A has been to enhance ancillary aspects of the solution set across industries, to add to what it already does in ERP. How would you estimate the revenue mix between ERP and non-ERP? Is it going to remain steady? Do you see the company continuing to look outside of ERP and tilting a little outside of ERP?

If we consider Epicor’s legacy and focal point continuing in ERP, even if the future revenue mix isn’t quite as significant compared to now, it’s still going to be at least two-thirds of the company. That’s an indicator of how it competes, but how does it differentiate? There are numerous competitors across a variety of customer types. How and why does Epicor win? Besides what you’ve noted about the long-spanning focus on ERP around key industries, is there anything more specific to highlight? What enables it to prevail in head-to-head bids with some of the biggest software companies in the world?

If you had to estimate the revenue mix across the three customer types, it seems pretty clear that mid-market is the biggest. What about enterprise and SMB? Is it two-thirds and then 15-20% for each of the other two categories? Is SMB a lot bigger than enterprise at this point?

What are your thoughts on Epicor’s competition, given it seems there are so many different dimensions to competition for this company? There’s on-prem then there’s cloud, as well as a handful of different industries that it sells into. There’s also the different types of customers, from the biggest companies in the world, the enterprises, to SMBs that might only have 5-10 people. What are the considerations about competition across these dimensions?

You mentioned the importance of the services firms, which we could refer to as consultancies or systems integrators. Presumably we’re talking about the big four and those relationships with the enterprises. How much of an uphill battle is it to break into enterprise and establish strong relationships with those systems integrators? How far along do you think Epicor is in that? Given where the world is going, I imagine people would probably gravitate to the company’s strengths you mentioned, whether the focus on certain verticals, customisations or industry expertise.

We discussed Epicor’s revenue mix of 70/20/10 respectively for mid-market, SMB and enterprise. What’s your 3-5-year outlook? Do you think the company will make a lot of headway when it comes to enterprise? Could that percentage go up significantly to 20%? Is that reasonable or is it going to be a steep climb with wins being few and far between?

What are your general thoughts on Epicor’s executive team? Is it doing the right things or doing too many deals? Should there be more focus on integrations? Are there other things that should be a focus? There seems to be a long legacy of technology, success, customer relationships and referrals, but then there are some obvious opportunities where the separate businesses can come together, learn and benefit from cross-pollinisation. I don’t know to what extent that’s happening.

Although Epicor is owned by a PE sponsor, could you see a larger strategic buyer having an interest? It seems the company has plenty going for it, and perhaps someone new could take a fresh look at the things you noted about pursuing enterprise, for example.

Given the importance of cultivating partnerships as Epicor looks upmarket, my understanding is that an overwhelming majority of the sales are done by internal salespeople. Is there an opportunity to flip that, especially given the focus on the mid-market and below? I think a lot of companies are saying, “For businesses of that size, we can make this more of a self-service sales and service motion, and when it comes to enterprise, that’s where we need our feet on the street and people calling on the big companies.” Is there an opportunity to change the way it thinks about go-to-market from the perspective of the size of the customers it works with?

What percentage of Epicor’s sales do you think comes from partners?

What do you think is the biggest risk for Epicor over the next 1-3 years?