Unit4 acquires again and updates on ERPx momentum

Unit4 has unveiled a second major acquisition in the space of six months, with the purchase of Danish procurement and supply chain SaaS vendor Scanmarket.

The move comes hot on the heels of Unit4’s purchase of compensation management software vendor Compright last December. CEO Mike Ettling said the swoop is designed to flesh out Unit4’s existing procurement and supply chain modules, as clients strive for greater agility and insight to combat current volatility; the acquisition also brings a complementary contract management solution to Unit4’s product suite that is likely to generate interest in its professional services customer base.

PAC caught up with the senior leadership team at Unit4’s partner and analyst event in London last week, where they provided an update on strategy, product roadmap, and how life has changed since its new private equity owners TA came on board a year ago. Here are some of the key takeaways:

The company is on the front foot. Last year, Ettling set out a target of achieving a $10Bn company valuation over the next four years and that remains the goal. The company’s target audience are mid-sized “people-centric organizations,” and it has built a strong pipeline as these businesses look for systems that can help them scale and tackle new challenges in areas such as financial management, project accounting, and resourcing.

Unit4 has four key industry sectors: professional services; higher education; public sector and non-profit, and within that first group, the IT services sector has been the primary driver of new wins over the last 12 months. France’s Devoteam was one major recent deal, and Unit4 is aiming to build on this momentum by adding more sector-specific functionality such as cloud cost forecasting while providing smoother integration into third-party tools in areas such as IT service management.

The acquisition of Scanmarket will not be Unit4’s last, and it remains on the lookout for further targets that will fill out its functionality, industry and regional presence, and account base. The company continues to make the majority of its revenue in Europe, so North America is likely to be a hunting ground, where the company sees strong growth potential, particularly in the professional services space.

The journey to SaaS is underway. Unit4 is now 40 years old, and like most established software vendors, its biggest challenge is to reinvent its core proposition for the cloud era. The company’s answer was the ERPx solution, which it launched in 2020, and has now been deployed at more than 100 clients, including Nordic financial services challenger Lunar Bank.

The company has a significant pool of clients that have already shifted to a cloud-hosted version of the legacy solution, and we heard from one key client – nuclear decommissioning group Magnox – on how the impact of the pandemic and the current geopolitical environment have reinforced the benefits that cloud delivery can bring in terms of supporting remote working and baked-in security and business continuity features.

But the way that Unit4 positions ERPx is not just a SaaS vs on-premise conversation, but as a more transformational play that enables clients to tackle pressing business challenges by harnessing data in a vastly improved way. Based on the Azure platform, it can provide a single platform for financials, procurement, and HR at a time when most of its target customers still run multiple, fragmented systems.

A lot of current R&D efforts are going into improving the user experience. For example, it is looking to provide a more intuitive and personalized experience using the Wanda digital assistant in areas such as timesheet management. The company also announced plans to launch a new Apps Studio later this year, which will serve as a low code platform that enables partners and clients to develop their own services on top of ERPx. The U4 Extension Kit will also enable ISV partners and customers to further build out the functionality of U4 products.

The partner ecosystem is ramping up. Unit4 is also banking on its partner ecosystem to help it reach its growth targets. The vendor launched a new partner program in June 2020 that saw it shake up and rationalize what was a fragmented and highly regionalized network. It has now settled on a three-tier core of around 40 partners, that now work to a single standardized points-based system.

Partners currently account for 15% of annual bookings, but this is expected to ramp up in the years ahead, with Unit4 also encouraging its partners to build additional tools and functionality that extend its reach in its core industry sectors. For example, construction sector specialist Tellit leverages a credit rating app from CreditSafe to help clients check the financial stability of their customers and prospects.

Some of Unit4’s partners are getting big. Norway-based Arribatec now has more than 400 employees following its acquisition of UK-based Integra Associates last year and has delivered major Unit4 implementations at the Port of London Authority and professional services firm Buro Happold.  

In summary, we think that Unit4 is perhaps the most re-energized player in the ERP space. We heard from several customers that Unit4 had got a lot better at managing the client relationship during the last few years, and there was positive feedback on how the vendor was involving shop-floor users in the product design process. One of the big improvements that have played out during Ettling’s tenure has been the laser focus on core industry sectors, and there is a lot of potential for Unit4 to expand in the fast-growing, but historically under-served, professional services sector in particular.

As a proposition for greenfield clients, ERPx ticks a lot of boxes in terms of user experience innovation and process automation, and it was good to see the efforts that it is making to position it at the heart of industry ecosystems, plugging into neighboring third-party apps and tools. 

But as all major ERP players are finding, the migration of a large installed base, built over the course of decades, to a new SaaS solution is a marathon, not a sprint. Unit4 has more than 5,000 customers worldwide, and it needs to avoid the trap that some of its peers have fallen into, in terms of how it helps them build the business case. The CFO is the primary target for Unit4 but it must ensure that they view ERPx through the lens of how it can support the wider business transformation agenda, or it risks getting pushed back into the long grass by the renewed focus on short-term cost optimization.