The IFS acquisition of Ultimo - why it's an EAM deal of note

The IFS acquisition of Ultimo

Recently, IFS bought Ultimo, a Dutch-based provider of EAM software.   Here's what that means for enterprise buyers. 

IFS is a Swedish ERP vendor with deep vertical knowledge in aviation and other segments. They have an Enterprise Asset Management (EAM) set of solutions, too. 

EAM products are quite useful in industries like oil & gas, manufacturing, power generation and other asset/capital-intensive verticals. At a minimum, this software helps firms stay on top of scheduled maintenance of machine tools, electrical devices, cooling/heating systems, vehicles, conveyors and more. The best EAM tools utilize sensor and other data to help detect upcoming service issues and schedule the procurement and installation of replacement parts. EAM products can help firms maintain safe working environments, improve uptime, increase profitability and mitigate unscheduled maintenance and downtime.

The acquisition

I saw IFS’ announcement of this deal last month. That press release stated:

ULTIMO complements the IFS Cloud EAM offering with a proven track record of delivering faster time to value within the industries they serve, and providing an EAM point-solution widely accredited for its rapid deployment and ease of use.

Founded in 1988, ULTIMO’S customers(sic) base sits primarily in Europe with some US presence. The company is Headquartered in the Netherlands, has 180 employees, and over 2000 customers, including London Gatwick Airport, BASF, VTTI, Ravago, Vion Food Group, Argent Energy, and Hutchison Ports ECT Rotterdam.

The combination of IFS and ULTIMO means that IFS stands out against competitors as the only vendor that is now able to offer Cloud native EAM solutions that cater for every company with either complex end-to-end business needs or as a standalone point solution.

I’m always interested in these kinds of deals. I like to know how the deal will impact customers, current management and investors. To that end, I sent IFS these questions:

• IFS already had an EAM solution that was pretty good. Why buy Ultimo then? Was this an opportunity to acquire customers, market share and revenue at a good price; or, was it to acquire more/newer/sophisticated technology; or, to take out a competitor; or, to cross-sell IFS’s ERP software to Ultimo’s customers?
• What will make this deal accretive, quickly?
• Does this deal change IFS’ cloud strategy, platform, or other technology vision components? How so?
• How will current IFS and Ultimo customers benefit from this?
• Will financing this purchase cause IFS to raise prices?
• Ultimo is big in Western Europe. Will IFS facilities and team members in the U.S. help sell and support Ultimo in North America?
• How does this deal, if at all, strengthen IFS in Asia/Pac?

What I learned

 I also spoke with Nils J. van der Zijl, General Manager EAM, for IFS. Given the newness of the deal, many product, integration and long-term direction issues are not settled yet. Financial terms of this deal were not disclosed. That’s not unusual as both firms are privately held.

Here are some of the answers or insights I got:

• Ultimo is strong in the mid-market. This could open up considerable cross-selling opportunities for IFS, its partners and Ultimo sales teams.  Ultimo customers can likely expect IFS ERP sales inquiries in the near future.
• One big cross-sell opportunity may be the North American market. IFS has a big headquarters in Illinois and a number of ERP customers within this market. Now IFS has two different EAM product lines to promote to these firms and Ultimo sales pros can push ERP solutions.
• There are distinct differences between the IFS and Ultimo EAM solutions.
• Ultimo customers will get to leverage a bigger tech stack.
• Nils also shared that Ultimo’s products are often installed in a very short time period.
• Ultimo will operate as a separate entity.
• The Ultimo products will be featured at the IFS user event in Miami later this year.

van der Zijl believes that Ultimo has a ‘snappy user experience (UX) and looks very professional’.  IFS has found no scalability problems with Ultimo’s solution and could see it playing more upmarket. Nils pointed out that both product lines use Microsoft Azure.

The money

As mentioned above, it’s hard to get financial terms information from privately held companies. What I can say is this:

• Crunchbase reported that Ultimo’s last funding round was in early 2017. This was a private equity led deal by Dutch PE firm Gilde Equity Management.
• IFS, according to Crunchbase, has had 3 funding rounds and raised a total of $3.4 billion. Key investors include EQT Partners, Zobito, TA Associates and Hg.
• IFS’ last financing round was in March of this year.
• IFS has made 14 acquisitions. Ultimo was the latest one.

How to read this deal

These are interesting times in the EAM space. EAM sits at the intersection of IoT/IIoT, ERP, AI and Big Data. Given all of the attention of late re: supply chain issues, product shortages and more, companies cannot afford any downtime. They need every operational asset of theirs to work perfectly, every time. There’s just no margin for error these days.

EAM functionality is quite important to ERP vendors and their customers. Where EAM is critical to OT (operations technology), ERP is critical to IT and administrative functions. Many major ERP vendors, especially those focused on manufacturing verticals, possess an EAM product set.

EAM shares some of the same data sources and technologies as what a great ESG (environmental, social & governance) solution might need. For example, the same sensors that report energy usage and other machine data can also provide guidance as to the condition of a firm’s capital equipment. I believe this area will get very ‘hot’ in short order.   

One of the more notable EAM vendors, Infor, sold their EAM solution last month. It wasn’t a straight up sale as it also wove a number of partnership and investment angles into the deal. According to an announcement about that deal:

Infor, the industry cloud company, today announced it has entered into an agreement to sell its global EAM (Enterprise Asset Management) business to Hexagon AB (Nasdaq Stockholm: HEXA B), a global leader in digital reality solutions, for approximately $2.75 billion USD in a combination of cash and stock, and form a strategic relationship with the company to better serve shared customers. The businesses will remain separate until the completion of the transaction, subject to regulatory approvals.

In addition, Infor and Koch Equity Development, both subsidiaries of Koch Industries, are building strategic relationships with Hexagon. As a result of the transaction, Koch also will have an ownership stake in Hexagon, and Hexagon's main shareholder, MSAB, has the intention of suggesting Brett Watson, president of Koch Equity Development, to the Hexagon nomination committee for nomination to the Board of Directors as soon as feasible post-closing.

Recently, Ultimo got good news when a research firm ranked it highly in their EAM reporting.

My take

As with any technology acquisition, customers should seek answers from the buyer. When a material change of control event occurs, new owners may change the leadership, product direction, product development plans, pricing and more. (see this story on material change of control protections) IFS indicated that Ultimo will operate as its own entity and there is a rationale for that.

Ultimo’s prior PE investor held a position in the company for five years. I suspect they made a tidy gain on the deal and this IFS acquisition may have been a very favorable exit for them. That said, one has to wonder if this deal could materially cut into IFS’ capital reserves and would that impair their ability to do other deals.

The key issue for this deal, in my opinion, is the potential overlapping in functionality with IFS’ and Ultimo’s EAM product lines. We’ll have to wait and see what IFS will have to say on this matter in the near future.