Author: AS Yamohiadeen

What Is Your Post-COVID-19 M&A Strategy | Blog

The International Monetary Fund has recently confirmed what most of us already know – we have entered a recession. Given the evolving COVID-19 situation, in the short-term, organizations are doing their best just to implement business continuity plans and keep the lights on. At this point, they simply don’t have the bandwidth to take a forward-looking view.

However, now – or at least very soon – maybe the best time to be bold – to consider the opportunity to slingshot through and out of the recession with a strong M&A strategy.

Increasing acquisition activity

As part of our technology research over the past few years, we’ve analyzed innovative firms (which we call Trailblazers) to identify high potential start-ups based on their growth stories, innovation, and the impact they have created in the market.

More recently, we’ve seen an uptick in M&A activity across the IT services market as organizations have sought exponential inorganic growth to expand their geographic footprints and/or fill gaps across their services portfolios. (See the exhibit below.)

How we expect the recession to impact this activity

Although this has been an acquisition-rich industry in recent years, everything is completely different now – the post COVID-19 market is clearly headed straight into recession, or worse. If previous recessions are any indication, M&A activity is likely to take a hit. While we believe M&A activity in the immediate aftermath of the pandemic will be subdued, we also believe there will be some interesting opportunities for those willing to invest some thinking and strategizing.

Is now the right time for you to consider M&As?

As the world adjusts to the next normal following the pandemic, some specific technologies/tools are likely to see a surge in adoption, including cloud, collaboration and CX, network and security, IoT and edge, to name a few. These technologies will play an important role in ensuring business resiliency and serving a distributed and remote workforce.

Within this context, a well-planned acquisition strategy can enable competitive advantage for those organizations willing – and able – to take a bold approach. We believe this segment-specific activity will be further fueled by:

  • Lower valuations: Most start-ups take a relationship-based selling approach, with about 80% of their revenue coming from a few high-value, large clients or markets. As the recession deepens, start-ups that are highly dependent on a few clients and markets will struggle to survive, lowering their valuation and increasing their propensity to be acquired. The lower cost of capital and the impact of the financial stimulus are also going to provide acquirers an impetus to re-examine their M&A playbooks. One such example is Magic Leap, which is looking at opportunities to be acquired as the hardware sector faces threats from the COVID-19 crisis, the impending recession, and the trade war between the US and China. Cash-rich organizations (PE/VC firms, service providers, and BigTech companies) are already looking at leveraging their balance sheets amidst this downturn
  • An opportunity to fill portfolio gaps: As growth across IT services is expected to soften for the foreseeable future, now may be the time – and the price may be right – for organizations to augment their capabilities, expand their addressable market, and increase their top line

We are already seeing interest from acquiring firms focused on cloud services (AWS, Azure, GCP), enterprise platform adoption (capabilities in ServiceNow and Salesforce), network services, and security, to name a few. As we approach the fallout from the pandemic, a range of investors will be eyeing the technology sector for M&A opportunities, and we believe there will be a lot of activity. Picking the right segment bets and timing these initiatives will be crucial.

What is your post-COVID-19 M&A Strategy? Please write to us at [email protected] and [email protected].

Oracle Wins Over Microsoft and SAP in the Cloud ERP BigTech Battle

As part of our enterprise platform services research, we reached out to 15 global IT service providers and some of their key enterprise clients to understand their views on the leading cloud ERP vendors: Microsoft Dynamics 365, Oracle ERP Cloud, and SAP S/4 HANA.

We then analyzed their input against five important parameters.

Who’s the winner? Oracle ERP Cloud.

Here’s a drill-down on our analysis of the five parameters.

Technology sophistication/product excellence

Microsoft and SAP are still struggling to migrate all the on-premise functionalities to their cloud offerings. In fact, many of the enterprises we spoke with consider Dynamics 365 and S/4 HANA simplified versions of their on-premise offering, but with some functionality gaps. On the other hand, Oracle has made significant headway in its migration and is stepping up to integrate emerging technology capabilities into its cloud offering. Microsoft and SAP also lack case study-based proof points that demonstrate the maturity of their solution.

Ease of implementation and integration

Although implementation completion time is consistent among the three vendors’ cloud offerings, there are significant variations among their ease of integration. Because of its Fusion middleware, Oracle ERP Cloud is considerably easier to integrate with on-premise systems and other third-party applications than the others. SAP ranks lowest on this parameter, mainly because of challenges associated with integrating other SAP cloud offerings, such as SuccessFactors, Ariba, Concur, and Hybris, with the core S/4 HANA and on-premise SAP products.

Commercial flexibility

Here, Microsoft fares better than both Oracle and SAP. It has a friendlier licensing model wherein it bundles its cloud ERP offering with CRM and other Microsoft products. In comparison, SAP’s limited features and functionalities make mid-sized enterprises its largest buyer group. And Oracle’s hosting environment isn’t particularly flexible; it is pushing to keep the NetSuite and Oracle ERP Cloud workloads in-house on the Oracle platform.

Talent availability

Because of Oracle’s and SAP’s strong presence in the on-premise ERP market, there’s an abundance of talent with the knowledge to be upskilled to implement, integrate, and manage their cloud-based offerings. In fact, supply is larger than demand. But Microsoft is struggling here, with a ~20 percent demand-supply gap for trained developers and integration consultants.

Overall customer experience

Over the past few years, Oracle has been able to improve its end-user experience with software updates. Microsoft is trying to create a better customer experience with its integrated enterprise offering. Dynamics 365 engagements are no longer just standalone ERP or CRM engagements; instead, oriented around a transformational impact message, they also encompass Office 365, Azure cloud services, and the Power platform. SAP is creating a better customer experience by collaborating effectively with its clients on implementation and maintenance issues. But it still delivers an inconsistent user experience between its on-premise and cloud version. While all three vendors have made strides in delivering a better customer experience, Oracle rose to the top on this parameter.

Our analysis shows that Oracle ERP Cloud is the clear, present winner in the war among the top three vendors. Although Microsoft and SAP are catching up with Dynamics 365 and S/4 HANA, and are doing great in specific niches, it will take some time before they evolve their offerings and establish some credible proof points across different industries.

Watch this space for additional blogs on the kind of challenges enterprises are facing with cloud ERP adoption, and what they should do to tackle them.

What has been your experience with cloud ERP? Please write to us at [email protected] and [email protected].

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