M&A Observations: Oracle, Infor And… SumTotal?

When SumTotal announced in July a not unexpected acquisition of Accero (really more of an aggregation because both firms were already owned by Vista Equity Partners, a private equity firm with a now substantial stake in HRM #EnSW) along with the acquisition of CyberShift, I was not surprised.  One could speculate at length, and others have done so, about the financial terms of this deal, the relative health of the acquired companies, the overall strategy of Vista/of private equity in all of this, and many of the other business details of this further consolidation in our industry.  My immediate interest is what this does or doesn’t do for the customers of all these firms, for the competitive landscape, and for the advancement of innovation, end-user service levels, and overall thought leadership in HRM software/services. 

SumTotal’s leadership is very professional, albeit with limited experience in our industry, and I believe that Vista will make money via the tight management of this portfolio using their very well-developed business integration and operations playbook.  I was personally impressed with how well thought out were their procedures for integrating aggregated companies.  And there are obvious cross-sell opportunities, e.g. much better workforce management from CyberShift for Accero’s (formerly known as  Cyborg’s) remaining installed base and much more of CyberShift’s capabilities for the entire SumTotal customer base. 

When you list all the piece parts now under the SumTotal brand, they do indeed cover much of the HRM domain in terms of administrative HRM automation and strategic HRM support in key talent, vendor, workforce and expense management areas.  But piece parts do not an integrated or state-of-the-art platform make, nor do they necessarily appeal to customers of the other piece parts.  For effective cross-selling as well as achieving end-user business outcomes, you need a platform that’s truly integrated — not unified, harmonized, or any other flavor but one which shares a common object model, meta-data, architecture, user experience and code base.  Yes, you need a platform that shares one workflow engine, one business rules engine, one of every critical utility across that platform.  And that’s before we consider the requirements for true a SaaS InFullBloom platform. 

I also can’t help but note that SumTotal has its work cut out for it to create anything close to a modern, global, SaaS or otherwise payroll engine with its business rules abstracted to meta-data, for that’s definitely not what Cyborg’s payroll application has been.  And even using the HRMS minus payroll and benefits capabilities in their previously acquired Softscape, there’s work ahead to create a truly modern, global core HRMS, integrated with that modern, global payroll engine, with a goodly chunk of country by country compliance functionality.  In fairness, our industry has produced VERY few modern global payroll platforms with built-out compliance for dozens of countries, and we’re not awash in modern, global HRMSs either, so there’s plenty of opportunity for SumTotal to make their mark. 

Is this a good business move for Vista with lots of cross-sell opportunities for SumTotal?  It certainly looks that way.  Does this ensure that Cyborg customers will get regulatory updates for the time being?  A modest yes here for just the basics,  and with fingers crossed that nothing goes bump in the night.  And this also assumes that SumTotal is able to retain the small team that knows that Cyborg code base well enough to support it (but who else is hiring Cyborg maintenance experts?) and, just as important, that knows how to handle the regs for each of the countries (they did say global) for which Cyborg must be supported.  But those Cyborg customers, those latest of late adopters, have no one to blame but themselves if they’re not happy with anything about this acquisition because they’ve chosen to run software that’s well beyond, a decade or two beyond, it’s “use by” date.   Is this a good move for CyberShift’s customers?  Very likely yes as their support will now come from a larger and well-managed vendor which has little overlapping functionality and many incentives to provide very good support to these customers and this code base.  As for the rest of SumTotal’s customers, they can judge for themselves whether their products and support have improved substantially in the wake of SumTotal’s acquisitions of Softscape and GeoLearning.

What I’m concerned about is the possibility that Vista Equity Partners will turn SumTotal into another Infor (or into its bigger brother in the HRM-related code base aggregation business, Oracle), however well-managed each of these firms may be.  Now this may not happen, and SumTotal does speak about a longer-term, integrated platform strategy, which is clearly needed.  But I think it’s a very open question as to whether Vista will be willing to invest at the level needed to pull off the design, development and migration to a truly new, totally rethought for today’s technology, and completely integrated platform, even if that platform finds a substantial starting point in the acquired Softscape code base (as SumTotal has said).  I look forward to having a large and vibrant, next gen-focused, investing heavily in product SumTotal.  A SumTotal that is growing their overall customer base organically, cross-selling their acquired products, and supporting very well all of their current customers on these acquired code bases.  Doing all of this is a huge challenge, one which Oracle has been working on for some time in somewhat similar circumstances but of course with much greater scale and resources.  We know this approach can be a money-maker for the owners, but will it advance the achievement of customer business outcomes?  Of best practices across our industry?  For SumTotal, Oracle and Infor (with respect to Lawson HCM quite specifically), this remains to be seen.

If what matters is sheer size, SumTotal has advanced its cause substantially with these two acquisitions as have Infor with Lawson and Oracle, much earlier, with PeopleSoft.  If what matters is having more functional boxes checked in their offering, then this is also a big move for SumTotal.  But my hope is that SumTotal will (1) design and deliver a next gen true SaaS platform as quickly as possible, (2) deliver a very broad suite of HRM applications on that next gen platform, (3) brief their newly acquired customers in great detail on that design and those roll-out plans so that these customers can plan for their migration, and (4) be a force with which to be reckoned in the HRM software/services industry for many years to come.  They’ve built a solid leadership team to take on these challenges, but it’s not yet clear to me if this type of agenda, with such a substantial needed R&D investment, will be funded readily by Vista.  Fingers crossed!

Oracle, Infor and now SumTotal.  All three firms are depending on a pile of middleware and the adoption of a SOA/Web services architectural paradigm to connect the dots of very dissimilar acquired software.  Oracle’s the furthest along this path, at least in the HRM software space, making pieces of Fusion HCM connectable to PeopleSoft and EBS HCM via their Fusion middleware.  Infor has made recent announcements about their plans in this area, and SumTotal has been very forthright about their plans.  But does any of this weaving together of disparate data designs and process thinking, some of which is VERY dated while other bits may be quite new, produce the deeply integrated business process-driven, embedded analytics-laden applications that our end-users have been led to expect from their consumer automation experiences?  Does any of this weaving together produce the fundamentally rethought and internally consistent object models and process flows that 21st century HRM requires?  Only time will tell.

And yes, in the interests of full disclosure, SumTotal is not a client although I was briefed on these acquisition announcements.  Cyborg was a client when, in the late 1990’s, they undertook a bold project to re-architect and redevelop their HRMS under the able leadership of Cheryl Paterson.  Cyborg licensed from me the then current version of my HRM domain model “starter kit” and associated architectural materials as input to this project, and I worked with the project team on a consulting basis.  In my opinion, the realistic budgets/timelines/etc. produced by that team, along with Cyborg’s inability to sell new US customers in a much changed competitive landscape,  were significant factors in the owner’s decision to complete the 2003 sale of Cyborg to Hewitt.  Then, in 2010, Accero, with plans (not realized to my knowledge) to upgrade substantially the Cyborg code base, renewed that license and received the 2010 edition of my licensed materials but without any related startup training