UNIT4 Marks A Major Milestone

ERP vendor’s Cloud run-rate eclipses actual license sales

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Having become one of the largest ERP vendors in the world, UNIT4 is charting a new course by expanding aggressively into the Cloud and experimenting new ways of selling its applications.

The new direction underscores the rebirth of the 34-year-old company as it transforms itself from an on-premise software vendor to one banking on Cloud delivery as well as partner enablement in new verticals. At the same time UNIT4 is placing high hopes on a new set of solutions that cut across social media, mobility, analytics and the Cloud.

Already UNIT4 saw a noticeable increase in the number of potential customers considering moving to the Cloud, including the adoption of full ERP suites via Cloud delivery in the fourth quarter of 2013. That resulted in the run rate of its Cloud sales reaching $109 million at year-end 2013, eclipsing traditional license sales of $99 million for the full year.

That’s a major milestone for a well-established software vendor long accustomed to consistent growth in its traditional license and maintenance business for much of its history. Even though many ERP vendors are embracing Cloud delivery, few have moved as swiftly as UNIT4 in driving SaaS revenues above license sales.

Despite short-term pressure on profit margin from expanded Cloud sales, UNIT4 also managed to clock in a 13% rise in EBITDA(the most common way to measure a software vendor’s profitability) to $132 million in 2013, up 13% from $116 million in 2012. The improved bottom line underscored UNIT4’s ability to strike a delicate balance between investing in the Cloud, while continuing engaging with its traditional on-premise clients.

In the fourth quarter of 2013 UNIT4’s SaaS and subscription revenues soared to $25 million, up 40% from $18 million in year-earlier period. License sales were flat at $31 million and support and professional services revenues rose 1% to $125 million. Total revenues for the fourth quarter of 2013 gained 5% to $181 million.

For 2013 UNIT4’s SaaS and subscription revenues topped $92 million, a 43% increase from 2012, while its traditional license sales fell 5% to $99 million during the same period. Total revenues rose 4% to $672 million in 2013 from $644 million a year ago.

The latest results were announced just ahead of a shareholder vote that would determine the fate of the Sliedrecht, Netherlands-based vendor readying to be taken private by Advent International for $1.6 billion.

Unit4 Cloud Sales
Unit4 Cloud Sales

Source: Company Reports

In fact, the considerable expenses associated with UNIT4’s cloud migration, coupled with the displacement of its conventional license sales by a new recurring revenue stream, were cited as one of the key reasons behind the board’s decision to exit the equity market leaving behind the watchful eyes of financial analysts, or for that matter the volatile stock-trading floor.

With the deep-pocket backing of Advent, UNIT4 is likely to make further acquisitions in the Cloud applications market, continuing its expansion plan into markets such as HCM and supply chain management. In November 2013 UNIT4 paid a total of $8.8 million for Vana Group for HCM and Less Software for procurement, folding them into its Cloud-based FinancialForce.com division, which is 82% held by UNIT4. Salesforce.com owns the rest.

In December 2013 FinancialForce’s revenue run-rate reached $31 million, up 80% from $17 million a year ago. The robust growth was attributable to customers opting for multiple modules such as billing, professional services automation, and financial management, thus boosting average deal size.

For its part, Advent said it is preparing to fund additional acquisitions on behalf of UNIT4 as well as other tech companies in its portfolio by tapping into a $1.1 billion war chest.

Following the sale, UNIT4 indicated that it would expand in markets where it has had limited presence. Those markets include the United States, Northern Europe, Asia and Latin America. Currently Western Europe accounts for the bulk of UNIT4’s sales with the Netherlands contributing about 30% of its revenues. In addition, UNIT4 will seek to extend its reach into certain verticals, especially in business services, government, education, and wholesale & distribution.

Partner Expansion Plans

Also looming large is a more comprehensive partner ecosystem, to which UNIT4 has recently been paying close attention, according to its new chief executive Jose Duarte who joined the company in 2013 after spending 20 years at SAP most recently as president of SAP Global Services and its EMEA business.

Duarte said the 2014 game plan will encompass verticals such as government and wholesale & distribution verticals involving more partner solutions designed for new buyer groups, or line of business executives, beyond its core constituents in finance and HR operations. Greater reliance on partners should also help UNIT4 raise its margins, while extending customer loyalty in new and emerging markets, Duarte added.

At the product level, Duarte said UNIT4 is gearing up for Milestone 4 as it starts capitalizing on the interplay among social, mobile, cloud and analytics, ushering in a new era of ERP built for people-centric businesses.

According to Ton Dobbe, its vice president of product marketing, the new Milestone 4 will position UNIT4 in the middle of a social model by leveraging preconfigured rules that apply specifically to its users. That in turn will drive greater relevance for them as they collaborate with colleagues, partners, and customers all accessing UNIT4 Agresso and non Agresso applications through its consistent, agile and well-defined data model and business processes. Dobbe also suggested that users will benefit from native in-memory analytic tools that could generate reporting and analysis 100 times faster than conventional approaches.

While the wheels have already been set in motion for a new UNIT4, the issue is how the change in ownerships will shape the outcome. A possible clue to that may lie in the new structure of UNIT4, which will have two software industry veterans sitting on its board in addition to a number of Advent partners.

Léo Apotheker, who joined Advent as a strategic advisor after an one-year stint as chief executive of HP in 2010 following a 22-year career at SAP, is expected to be named an non-executive director of UNIT4. Joining Apotheker on the board of UNIT4 will be Bret Bolin, executive chairman of Misys, which was taken private by Vista Equity Partners in a $2 billion deal in 2012. Since 2008 Bolin has held a series of chief executive positions at P2 Energy Solutions(also an Advent company), Turaz(merged with Misys) and Misys until June 2013. The involvement of these software industry veterans suggested that UNIT4 would become one of the major platforms for Advent to launch additional acquisitions in order to scale out its enterprise applications portfolio.

At a time when private equity firms are controlling a growing number of major enterprise applications vendors(Epicor, Infor, and SunGard come to mind), UNIT4’s future mirrors that of the software marketplace, which is bifurcating into private and public entities with the former gobbling up the latter at a dizzying rate.

Regardless of the macro shifts, UNIT4 is positioning itself to reach one new milestone after another by winning the hearts and minds of a new crop of Cloud applications subscribers, while fostering strong ties with its existing customers.

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