What Does Koch Industries Acquisition of Infor Really Mean?
On February 4, 2020, Koch Industries announced it had acquired the remaining 30% of enterprise software company Infor making it the sole owner. Golden Gate Capital had primarily held those remaining shares. Koch has been investing in Infor for the last several years, increasing its share to 70% last year. Given that Koch has had effective control of Infor for almost a year already, many are probably wondering if this news changes anything.
Often Industrial Company Investments in Tech Stumble
History has shown that industrial companies have had mixed success when buying tech companies and trying to branch out of their industrial roots. There have been some failures, a few successes, and many instances of mixed results. Most of the failures have occurred when an industrial company develops an in-house application that beats the functionality or usability of most of the products in the market or breaks new ground and then tries to set up a software division as a new business unit. These failures generally occur because the industrial company has no clue how to run a software business.
One example of a successful industrial company building out a powerhouse software business is Siemens. While their automation business had supporting software capabilities like most of their competitors, Siemens went big and acquired the UGS PLM business in 2007. Since then, Siemens has expanded the software business so that now it is a significant part of its business.
However, most industrial company forays into software have had mixed results. GE, with its push with GE Digital, has had successes but also setbacks, as have other smaller companies that often end up spinning off their software entities and refocusing on their core competencies.
Can Koch Industries Succeed in Tech?
As part of the acquisition, Koch will keep Infor as a separate operating unit with its headquarters in New York City and retain the management team. While Koch is a private company and exact revenue is not disclosed, estimates are that it is about $110 billion annually. The investment in Infor is being managed through Koch Equity Development LLC. Koch has been using Infor’s CloudSuite solutions across its businesses and has been a leader in recognizing that technology and digital transformation is essential to its continued success. Koch has been aggressively investing digital transformation initiatives across its many businesses.
With its 2019 second-round investment in Infor positioned as an investment to set the stage for an IPO, the question becomes, will Koch still pursue that IPO or keep Infor private, at least for the mid-term? Most likely, Koch will delay an IPO and continue to invest in and deploy Infor technology across its businesses as well. If it retains the leadership team and truly keeps Infor at arm’s length, then my opinion is that Koch can make this acquisition work.
Existing Customers Should Breathe Easy
At least for now, existing Infor companies should continue to treat Infor with a “business as usual” attitude. Koch has been committed to Infor for the last several years and will continue to invest in Infor, driving both functional and technological enhancements. With its diverse manufacturing profile and its commitment to using Infor internally, this will likely help a wide range of companies using Infor’s products. New customers considering Infor should look at Infor in the same light.
What it Means for the Larger ERP Market
Perhaps the greater significance of this acquisition will be the impact the move has on the more significant ERP market. First of all, it provides Golden Gate Capital with an estimated $1 Billion+ of money to invest in another software company, possibly in the same or closely aligned space since this has been a GGC sweet spot over time. This could give an Infor competitor a boost as there are several mid-market ERP vendors that are pursuing Infor in that segment. A capital infusion could support the move of any one of those companies to a Cloud-centric strategy, something where Infor was an early adopter and is now a leader in that approach.
The investment by Koch is not unexpected, nor is it a game-changer. It does present both companies with opportunities and challenges. Still, the safe money is that in the long term, it makes sense, and both Infor’s existing customers and Koch Industries will benefit.