Enterprise resource planning (ERP) refers to software applications that are used to manage day-to-day business processes. ERP systems connect and integrate these processes enabling organisations to analyse and manage a wide range of business activities such as supply chain, finance, manufacturing, sales & distribution through a central application. The ERP value chain includes software development, implementation work for new ERP systems, maintenance work for existing systems and ERP consultancy services. This research focuses on independent European ERP players that specialise in developing proprietary systems for core business operations across various sectors.

The European ERP software market is dominated by a triumvirate of SAP, Microsoft (Dynamics) and Oracle, which set a rapid innovation pace for the entire industry. Unable to keep up due to lower R&D capital, small and medium-sized ERP generalists are rapidly falling behind. These players are expected to either be acquired by larger competitors or to give up their proprietary software development activity in favour of less capital-intensive software implementation activities. The players with specialised niche expertise (e.g. specific industry focus, business vertical) stand a better chance at remaining competitive thanks to entrenched market positions.

The sector attracts a high financial sponsor interest. We believe this is generally attributable to strong margins, top-line resilience and significant customer stickiness, while selected businesses can act as buy & build platforms. However, investors must take into account the impaired cash conversion due to continuous R&D spending, as well as data security and talent shortage challenges posed.