Maxwell Systems recently made a fourth acquisition in its continuing consolidation drive, this time quietly picking up Quest Solutions. Quest is one of the leaders in the takeoff and estimating segment. As a "pure play" estimating vendor, Quest complements Maxwell's other products very well. Given this recent deal, I figured it would be a good time to step back and talk about M&A activity as a follow-up to our interview last year with Marshall Warwaruk of the Corum Group.

First, merger and acquisition activity is booming, especially in software. In 2006, a total of $119 billion in software mergers and acquisitions were completed. This level of activity continued in the first quarter of 2007.

Why? Industry maturity. While new and established vendors continue to innovate, the fact is that the software industry has matured. In light of this maturity, acquirers are actively buying other companies to:

1. increase profits by taking advantage of economies of scale or synergies;
   
   
2. increase market share over competitors; and
   
   
3. gain access to new technologies or deployment models.

There are a number of strategies being employed in today's M&A market. At the core of many strategies is the opportunity to buy companies with large maintenance bases (customers paying annual fees for support and product updates). This revenue is extremely profitable (85% gross margins). When you acquire this type of revenue stream and then eliminate redundant employees in sales, marketing or development, the profitability of the business as a whole is impressive.

Overall, Oracle is probably the largest consolidator pursuing this strategy and does have a large presence in construction through its 2004 acquisition of PeopleSoft, which had previously acquired JD Edwards. JD Edwards tended to serve the needs of the very largest construction firms.

Sage Software is also a very aggressive consolidator, having purchased over 30 companies across many industries in the past 16 years. In construction, its deals included Timberline in 2003 and both Master Builder and Contractor Anywhere last year. This positions Sage as perhaps the largest software vendor in the construction market (depending how you view Primavera's share). They are highly efficient in their integration of acquired companies and appear to do a good job continuing to support, extend and market acquired products.

Maxwell Systems is certainly benefiting from combination synergies, but it is also clear that their strategy leans toward minimizing functional overlap. The company acquired The American Contractor to serve smaller contractors. Colonial Systems added property management functionality. Cheetah StreetSmarts brought heavy/highway functionality. With Quest, they obtain specialized estimating and takeoff functionality. So, Maxwell can benefit form merger synergies, but avoids confusion form too much product overlap in their portfolio.

Explorer Software is another consistent acquirer. Explorer has bought construction software assets from RedSky IT, TSC Solutions, Ferrell Companies, Versyss Systems and Conac Software -- all in the last two and a half years. One interesting component of their strategy is that they have eliminated most office space and moved existing and integrated employees into home offices with VOIP phones and high-speed Internet access.

So, what does all this mean for construction firms? At the highest level, consolidation is good. Assuming there will always be enough vendors to ensure healthy competition, fewer vendors should make for an easier process when selecting new software. Moreover, with more resources concentrated in larger firms, customers should benefit from more viable vendors.

Also, an acquirer with a strategy of profiting from maintenance revenue streams has a strong incentive to keep its acquired customers happy so they renew those valuable support contracts.

At the same time, there is always a risk that an acquiring vendor intends to "sunset" the product you rely on each day. In this case, it makes sense to look around at their other products as well as competing products. Monitor the quality of service you receive and don't wait until the last minute to explore all of your options.

June 11, 2007

Seems like our industry has been using software effectively for about three decades, which begs the question: has it really improved during that time? I could get along fine with Word and Excel, and maybe throw in SureTrak or Project.

But our industry seems bent on making huge, do-everything programs that are so enormous, they frequently don't or can't do much at all!

As one who writes extensively on the subject ("Full Contact Project Management", ) in several magazines, and author of the book, "Get Paid for a Change!", I stress paying attention to the basics: get in, get out, get the money, and don't do any work for free.

All I need to accomplish that is Word and Excel on a daily basis, and SureTrak on occasion.

As contractors, let's know our projects, our contract documents, and remember what the client wants: the job finished yesterday!

We should sharpen our skills on the basics and not become so enmeshed in the latest and greatest new software extravaganza.

"Coach" Gary Micheloni
www.fullcontactPM.com
www.fullcontactBlog.com
author, speaker, consultant
and working project manager