ExtrEAM Consolidation: Datastream, MRO, Indus Succumb, and Then There Were...Still Three

From AMR Research, Inc.
Thursday, October 26, 2006
Alison Smith

Is it something in the air? The ink hadn’t dried on our “And then there was one” piece about the dramatically shrinking short list of large pure-play EAM vendors when Vista Equity Partners announced its imminent plans to acquire and merge veteran enterprise asset and service delivery management (EAM/SDM) vendor Indus International with mobile workforce management application provider MDSI (another Vista-owned property). 

In January 2006, we noted that Infor’s acquisition of Datastream marked the end of an era for large best-of-breed EAM providers (see “Enterprise Asset Management, Part I: An Application Market at the Crossroads”). We couldn’t have been more spot on. Infor snagged Datastream, IBM acquired MRO Software, and now, long-time EAM provider Indus has gone the way of all large EAM pure plays. Will these best-of-breed providers vanish from the landscape, or is the stage set for a flurry of market share trades? The outcome will depend on how buyers handicap the new owners.

Anatomy of the merger

In 2005, Vista Equity Fund II, L.P. purchased Mobile Data Solutions, Inc. (MDSI), a provider of mobile workforce and service management applications targeted predominantly at the intra-day services market. This infusion of working capital freed MDSI to execute expansion plans—either through partnerships or acquisitions—in target utilities and telecommunications markets, specifically in the realm of asset maintenance and management.

MDSI’s workforce management capabilities are based on activity models for humans rather than on detailed models of capital assets, so adding depth required an asset model and the ability to link activities to the assets being serviced. And while MDSI could accommodate intra-day service management (collections, meter service, etc.) it lacked the functional depth for large and complex projects.

Tracking and managing multiday maintenance activities, major repairs, rebuilds, and construction takes more than simple work order assignment, dispatch, and reconciliation capabilities. It requires work order management, advanced planning and optimization, inventory planning and management, parts logistics optimization, service desk capabilities, and a host of other elements.

In short, MDSI had a set of capabilities that could extend a traditional asset maintenance management product by adding mobile workforce support, but it was in need of the core functionality. It found the answer in Indus, which through the deal gets an infusion of working capital, the opportunities for transformation that accompany privatization, and access to new industry verticals that are characterized by large mobile workforces. This is an ideal match given the company’s thrust into service delivery management.

Indus users should be pleased by the financial stability this union promises

Despite a growing list of successes with the Indus Service Suite in non-utilities markets, such as healthcare and industrial equipment, Indus continues to derive more than half of its total revenue from the utilities sector, where it has a large installed base of users running older Indus EMPAC and PassPort EAM products. The good news is that this large installed base includes prestigious names such as Exelon, one of the largest U.S. investor-owned utilities. That said, although this base is large, migrating to new products and/or accepting upgrades is a slow process. Our research shows that the lag between upgrade availability and customer acceptance for applications of this class is often measured in years.

To offset this inertia and hedge against EAM market erosion by the ERP-based EAM provider companies like Oracle and SAP, Indus has been executing an ambitious plan to enter the emergent SDM market, using its significant depth in asset maintenance management as the springboard. For Indus, this was a significant strategic shift—one that has only recently begun to pay off. In the meantime, the company has been compelled to restructure, which has shaken the Street.

MDSI, like Indus, derives a significant share of its revenue from the utilities market, with additional contributions from telecom, where Indus incidentally also has a presence. Both companies derive revenue from other markets as well (wastewater, municipalities, and fleet to name a few), but in the near term, the low hanging fruit will be their core shared markets. In fact, focused cross-selling will likely be the revenue generation engine that powers the new entity until new markets like energy maintenance, office equipment, home appliances, medical/scientific equipment, and industrial equipment can be opened and tapped with the service delivery management offering.

In the meantime, Indus reports that it will stay its current course to release the next version of its Asset and Service Delivery Management Suite in mid-2007, anticipating that its existing base of EAM clients will be completely migrated to the new platform over the next four years.

Handicapping the new owners:  three pure-play acquisitions, three best-of-breed evolutions

It would be easy to drop the flag, call “Consolidation!” and let it go, but analysis of the path and trajectory of each of the large EAM former pure-plays reveals three different strategies, each with the potential to play out very differently. In the near term, Datastream, Indus, and MRO are still the three big best-of-breeds in the market – both in terms of market share (together the three represent nearly 50% of the total EAM market based on revenue), and functionality.  In the longer term, that status will depend largely on how prospective buyers handicap their new ownership.

Infor/Datastream: Bringing EAM to the masses...of ERPs, that is

Infor is executing a strategy to grow enterprise application market share through acquisition. With Datastream, it snagged an EAM component that could be cross-sold into its expanding installed base of legacy midmarket ERP clients.  From a checklist perspective, possession of Datastream allows Infor to claim equivalent, if not superior, EAM functionality to that offered by rival ERP providers Oracle and SAP (see “Infor Snags Datastream”). 

Datastream’s longevity as a standalone application offering will depend on whether Infor can successfully digest all of its acquisitions and, at the same time, funnel resources into executing Datastream’s roadmap. Future versions of the product, if Datastream is given the resources to execute its plans, will offer midmarket companies, municipalities, and blended fleet managers a trimmed down, easy-to-deploy platform for asset maintenance management—particularly when the assets and the workforce delivering the maintenance services are mobile. 

Look at Lawson/Intentia and IFS, both of which tender best-of-breed EAM capabilities that can be deployed independently of their ERPs, for other instances of this model. Overall, it’s a good fit with Infor’s cross-sell strategy, and it keeps Datastream IP in play as a best-of-breed application.

IBM/MRO Software: A future in managed services

IBM Global Business Services (GBS) and IBM Tivoli Software have multiple roads to ROI on their MRO Software investment. MRO Software brings a large and loyal installed base of customers, all good news for a maintenance revenue stream, upgrade license revenue, and additional professional services dollars.

However, as we indicated in “IBM and MRO Want To Maximo-ize Your Returns on Strategic Enterprise Assets,” EAM revenue and help desk enhancements for the Tivoli Software side of the business pale in comparison to the potential for a comprehensive managed services play. Such a play is so large that it easily allows the traditional EAM component of the business to remain intact (complete with a professional services delivery capability), with enough working capital to stay ahead of the existing ERP-based competition. 

The larger vision creates new market opportunities across the board. Whatever the cobranded name ends up being, Maximo MXES functionality will still be available to prospective buyers—only now, there’s a $90B company behind it.

Indus/MDSI: The whole may be greater than the sum of the parts

This is a case where 1 + 1 has the potential to equal 3. Initially, the two companies share common target markets in utilities and transmission and delivery, and have complementary offerings even before making modifications to closely integrate the products. Cross-selling activities can carry this new entity, and existing clients won’t miss a beat. 

In the meantime, there’s stability and working capital to spend on new product development, and expansion into other segments characterized by widely dispersed assets that are serviced by a large field workforce. The new company (its name is yet to be determined) isn’t associated with either a large ERP vendor or with a large platform vendor—hence, it can proceed unfettered by the long cycle times associated with large corporate bureaucracies and, quite frankly, public shareholders. 

In short, it’s still a pure-play best-of-breed software application provider, albeit under new ownership.

The more things change, the more they stay the same

The current spate of consolidations is less about users losing access to best-of-breed functionality than it is an indication of the way asset management and maintenance delivery models are evolving to meet market needs. In our earlier article on the IBM-MRO acquisition, we laid out four delivery models that we see the market experimenting with:

Internal asset management and maintenance as a shared service
Internal asset management and maintenance as a P&L center
Third-party performance-based asset management and maintenance delivery
Third-party managed maintenance services
The asset models that are core to today’s asset maintenance management and EAM products are the foundation on which these emerging business models rest. As such, the consolidation we’re seeing in today’s market is simply setting the stage for the next generation of asset management and delivery applications.

In the meantime, prospective EAM buyers should continue to include the big three on their RFIs. Just remember to update your contact database with their new names.