Industry research
Scope
Europe
Companies
112
Table of contents
Key takeaways
What does the ERP software market landscape look like in Europe?
The European ERP software market is dominated by SAP Group, Microsoft and Oracle, which set a rapid innovation pace for the whole industry. Small and mid-sized ERP generalists cannot keep up due to lower R&D budgets. These players are expected to either be acquired by larger competitors or to give up their proprietary software development capabilities in favour of less capital-intensive software implementation activities. Players with specialised niche expertise (e.g. specific industry focus, business vertical) stand a better chance at remaining competitive due to their entrenched market positions and sector-specific knowledge. Herein, ERP software developers focusing on industrial clients are even more protected, as their industry-specific knowledge and mission-critical suites serve as additional levers for customer lock-in.
What is the level of investor activity in the European ERP industry?
Interest from financial sponsors has been high, with ~60% of identified assets being sponsor-backed (as of April 2024). Investors are primarily drawn to (i) the ongoing digitisation trend among SMEs, (ii) players' strong top-line visibility from recurring subscription fees and (iii) the market's attractive profitability ratios (~20-25% median EBITDA margins 2018-2022). Herein, listed players SAP Group, Software AG Group, Lemonsoft and Comarch Group traded at an LTM EBITDA multiple of ~23.5x, ~22.2x, ~14.2x and ~8.1x, respectively (Finbox, April 2024). Some industry executives (interview by Gain.pro) are sceptical about investors' intentions to cut costs, employee benefits and management teams.
What are the key ESG considerations in the European ERP industry?
The ESG agenda of ERP suites focuses on environmental and governance topics. From an environmental perspective, operating data centres that host ERP suites contributes to significant energy consumption and CO2 emissions. To prevent these emissions, SAP Group-owned data centres power their operations using 100% renewable energy by investing in EKOenergy-certified energy attribute certificates, for example. Governance risks in the ERP industry mainly revolve around data privacy breaches and system disruptions. ERP systems are attractive targets for cyberattacks given the magnitude of sensitive information they hold.
Company benchmarking
Market growth
According to Statista (December 2023), the European ERP software market generated ~€10.1bn in sales in 2023 and is forecasted to reach ~€13.2bn by 2028 (+5.5% CAGR 2023-2028)
Statista (December 2023) valued the European enterprise software market at ~$65.4bn in 2024 and projects it to grow to ~$85.2bn by 2028 (+6.8% CAGR 2024-2028)
Positive drivers
Transition from on-premise to cloud-enabled SaaS-based ERP platforms will improve customer lock-in, revenue visibility, scalability and bottom-line profitability (interview by Gain.pro; Spiceworks, November 2023)
Margin improvement potential through (i) customised offerings as clients demand more operational flexibility and by (ii) doubling down on marketing efforts where the ERP industry traditionally has been lagging behind (interview by Gain.pro)
Decoupling traditional ERP systems (including common and more specialised capabilities) to a leaner core with API connections to specialised modules will increase flexibility and decrease the time needed to add new features (McKinsey & Company, February 2023; BCG, August 2023)
Negative drivers
High pace of technological development requires continuous software adaptations, wherein players lacking the spending and innovation capacity will increasingly struggle as customers gradually switch to newer alternatives (interview by Gain.pro)
Structural personnel shortages across the European IT industry are likely to hamper new product development, hinder organic growth and further inflate labour costs for ERP software businesses (interview by Gain.pro)
Rising number of cyberattacks on ERP systems entails substantial liability risks. Hackers are becoming more discerning in their attacks, shifting from the theft of data to the disruption of complete systems (McKinsey & Company, March 2022)
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With the full report, you’ll gain access to:
Detailed assessments of the market outlook
Insights from c-suite industry executives
A clear overview of all active investors in the industry
An in-depth look into 112 private companies, incl. financials, ownership details and more.
A view on all 801 deals in the industry
ESG assessments with highlighted ESG outperformers
