The Potential Impact of the Activant-Epicor Deal

The distribution software industry got shaken up today with the announcement that private equity firm Apax Partners has agreed to buy the privately held Activant Solutions Inc. and public Epicor Software Corp. for a combined transaction cost of about $2 billion. The firm agreed to pay Epicor $976 million but did not disclose the Activant purchase price. Technology is one of Apax's five core investment areas.

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If both transactions take place, the firm says it plans to merge the two software companies under one name: Epicor Software Corp. The combined company would have $825 million in revenues.

It's still possible Epicor will be picked up by another buyer – strategic or financial – as its agreement with Apax allows the firm to solicit other acquisition proposals for 30 days ending May 4, 2011.

In a press release, Activant CEO Pervez Qureshi explained the strategic nature of the proposed  deal: "Our market leadership and expertise in distribution perfectly complements Epicor's expertise in the manufacturing and services sectors." In other words, the two together would offer a full supply chain solution. Apax Partners says that customers of both companies will benefit from the combined entity's increased scale, portfolio and expanded service offerings.

What does this mean for distribution?

Steve Epner, founder of distribution software consulting firm BSW Consulting, and Jeff Gusdorf, principal for BSW, said this deal may make other large software companies serving the same markets consider expanding their breadth to compete with a combined Activant-Epicor "end-to-end solution." (Epner is featured in the upcoming MDM Webcast: Cloud Computing – Reality vs. Theory.)

The deal likely would not have much impact on small software providers in distribution, Gusdorf says. While there is always some overlap in potential customer base, the fragmented and diverse nature of wholesale distribution provides opportunities for niche software companies serving small distributors in specific sectors.

Activant and Epicor are likely communicating (or will be) with their existing clients about the deal. The bigger impact initially may be on distributors that are currently selecting software. Those that were considering Activant or Epicor may reconsider. "They'll have to wait and see if this will impact them in any way," Gusdorf says. And competitors to those software packages may use the uncertainty that typically comes after an acquisition announcement to attempt to change minds.

The distribution software landscape has dramatically shifted in the past decade; now there are fewer distribution-only software players and many smaller solutions have been phased out. It will be interesting to see how the latest announcement – a proposed merger of Activant and Epicor by a private equity firm – will influence ongoing consolidation and service decisions.

MDM's Distribution Software Special Report is available on the front page of the MDM Distribution Technology Provider Directory. It includes an analysis of software provider consolidation and the impact that has had on wholesale distribution.