Unit4 Strikes Back After Rightsizing for Cloud ERP Growth

In the annals of the ERP software evolution, few providers have done more to rightsize themselves than Unit4 in order to strike the balance between scale and stability. Confident about its staying power, chief executive Mike Ettling upped the ante by detailing how the 44-year-old company is planning to secure its future by shedding its past at a recent analyst briefing in Philadelphia.

One of the top priorities is to migrate its on-premise customers – about 600 of its ERP installed base of 3,000+ customers  – to either Unit4 ERP Continuous Release or its latest release Unit4 ERPx. The company expects the majority will do the former as a steppingstone, which will make their move to ERPx easier and faster.

Upon the issuance of its migration notice in 2023, Unit4 reiterates that on-premise ERP support will continue until the end of 2026. However, customers must have a commercial agreement in place with Unit4 by the end of 2024 ; and have until the end of 2026 to start their upgrade.

Even though some of these on-premise customers especially those involved in public sector and defense may still harbor doubts about security and information access in the Cloud, Ettling said data sovereign protections from its partners like Microsoft Azure will mitigate those risks.

Following the migration, Ettling aims to more than triple Unit4’s Cloud-based annual recurring revenues to more than $750 million from its current level of about $250 million, paving its way to emerge as a $1 billion player. Today, its total annual sales are estimated to be $470 million, compared with $365 million in its fiscal 2019.

After decades of steady growth, Unit4 hit the wall in 2009 during the financial crisis when its revenue dropped to $400 million. Struggling to rebound, Unit4 was taken private by Advent in 2013 for $1.4 billion. Chris Ouwinga, who founded Unit4 in 1980, gave up his CEO post. Then it spun off a few of its operations including wholesale, while adding others like Three Rivers Systems for student information systems and Intuo for Core HR.

Finally, TA Associates bought Unit4 for $2 billion from Advent in 2021 following the latter’s decision to spin off from Unit4 its SIS business and FinancialForce, which focuses on financial management systems for professional services organizations. Ettling continued to rightsize the company by buying Compright for compensation management in 2021 and Scanmarket for cloud Source-to-Contract software in 2022.

By focusing on four strategic verticals – Public Sector, Higher Education, Professional Services and Nonprofit, Unit4 is firing up its user-centric strategy by leveraging AI assistants to automate tasks, while investing heavily in partner ecosystem and outcome-based customer successes through simple and repeatable service delivery.

For decades, Unit4 has been nibbling at the heels of ERP giants by doubling down on what it does best – selling affordable, easy to implement and use financial management applications, often scoring a double-digit win rate against incumbents like SAP.

Ettling, who became its CEO in 2019 after heading SAP Successfactors, said Unit4’s real value propositions lie in a combination of a solid ERP platform, ample vertical expertise, increased partner engagement(18% growth in orders through partners in its fiscal 2023) as well as a total revamp of its customer success program. While at SAP Successfactors, Ettling was also instrumental in overhauling its customer success program.

Unit4 launched the Success4U program in 2023 by introducing a series of templates, service packages from cloud migration to managed services, all working in concert to bring down implementation costs and boosting customer satisfaction. That also results in an uplift of as much as 28% in annual recurring revenue to approach an estimated average selling price of $90,000 per account. Multiple that by 3,000 Cloud ERP customers, the Unit4’s goal of surpassing $300 million in cloud annual recurring revenue may take time, but still attainable.

That painstaking effort is also evident in its sales activities. When one compares Unit4’s recent transactions with those from ARTW’s archive, the contrast is striking showing that back in 2009, top deals – almost all on-premise sales – won by Unit4 averaged around $1.25 million in license revenues.

Today, its top Cloud ERP deals would generate on average $250,000 in annual recurring revenue under a contract that typically runs at least three years in duration. In other words, it would take four to five years before Unit4 can recoup the full amount that it was getting 15 years ago. Still, the math works in its favor as long as the customer keeps subscribing to Unit4.

One of its recent converts is IO Interactive, a Danish game developer that has migrated from its older version of Cloud ERP to ERPx attributing Unit4’s simple and scalable platform to its ability to run the entire financial management processes including AP, AR, GL, Sales Order and financial analytics with ease as it looks to expand its use by adding eInvoicing from Unit4 partner Pagero to fully automate specific tasks.

The question is all these developments and customer goodwill need to be sustained at lightning speed given the pace of change happening in the marketplace compounded by shifting user sentiments. Case in point is Blinqx, a Dutch startup cofounded by Ouwinga five years ago and now being managed by many former Unit4 executives. Since 2019, Blinqx has experienced robust growth by expanding rapidly to cover 500+ employees and 100,000 users that now rely on its suite of ERP, HR and CRM applications designed for professional services and public sector clients, the same set of customers that Unit4 is targeting.

With a goal to outlast both legacy and new competitors, Unit4 executives said it is committed to accelerating cloud migration by boosting go-to-market initiatives at the global level, along with ecosystem support and improved customer outcomes, as seen in 10% rise in employee self-service after running its software.

Already, Unit4 has been able to rein in on its churn rate by keeping it below 15% among its on-premise ERP customers, while its latest quarterly results ended September 30, 2024 showed a 17% sales growth riding on top of a 53% jump in SaaS revenue.

List of Unit4 Customers

Source: APPS RUN THE WORLD Technographics, December 2024

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