Epicor's Acquisition of Kyklo
ERP Tech M&A Analysis
Hi everyone,
May we all say a prayer for the families of yesterday’s horrible tragedy and be grateful the outcome wasn’t even worse.
A few weeks ago, we polled the audience of your top area of interest from Q2 distributor tech M&A – and Epicor’s acquisition of Kyklo was the top choice. So, let’s dig in!
Epicor is one of the leading ERPs for B2B distributors and is owned by one of the top PE’s in the space, CD&R. Epicor owns multiple ERPs such as Eclipse, Prophet 21, Bistrack and others.
Some of their ERPs have strong vertical dominance, particularly in industries like electrical and building materials. Some are more horizontally spread out.
The Kyklo acquisition isn’t their first rodeo by any means. Over the past 4 years, they’ve acquired 10 tech companies and 2 service providers. The Kyklo deal, however, could be their most audacious.
What is Kyklo?
Kyklo is an eCommerce and product data company for electrical distributors. They help an electrical distributor sell more online and also enrich their product catalog. Both of those products work hand-in-hand. If a distributor has better product data, their chance of success in eCommerce increases. That said, Kyklo also sells these products separately – if an electrical distributor already has an eCommerce site, they can purchase just the product data module.
Kyklo was founded in 2015 by former Schneider Electric employees, Remi Ducrocq and Fabien Legouic. In 2020, they raised almost $10M from venture capital investors to accelerate their efforts to digitize commerce in electrical distribution.
So, how did it go for Kyklo?
I’d say it went OK. Not great, but not bad. They built some good products and they managed their costs effectively with a team of offshore development resources led by one of their co-founders. But, the electrical distributors weren’t ready for everything Kyklo had to offer. We’ve seen eCommerce take off in select verticals of B2B distribution, but – overall – eCommerce penetration is not meaningful. We believe B2B distribution eCommerce is still less than 1% across all verticals.
Epicor’s Acquisition History
The types of companies that Epicor is buying is pretty smart. They’re buying point solutions that can provide specific functional value to their existing customer base. After buying the software, they can create a best-in-class integration into Epicor’s ERP, making it easy and seamless for their existing customers to use the software. Some of these capabilities are offered for free, and some require an additional fee. Additionally, a number of these solutions are vertical-specific, catering to verticals like electrical, paint, or aftermarket. Others are horizontal and cater to all verticals.
For example, Epicor bought Data Interchange in 2022, an EDI technology company. This is a horizontal software solution that could benefit all types of distributors. As compared to Kyklo which is a vertical-specific solution focused on electrical distributors.
Like hockey players helped the curve in my college economics classes, so does Kyklo. Of Epicor’s past 12 acquisitions, the average year that those companies were founded was 1997.
Of Epicor’s past 12 acquisitions, the average year that those companies were founded was 1997.
As a PE backed company valued on EBITDA multiples, the 1997 number makes sense. There’s no way to make multiple-accretive tech acquisitions if every company is VC-backed and founded in the past 10 years.
What’s Special About Kyklo?
So, what makes Epicor buck the trend and buy Kyklo, founded in 2015?
We often talk about how the two key capablities for digital commerce are connectivity and product data. Epicor will solve connectivity by providing a best-in-class connection with Eclipse. And, Epicor can upsell the eCommerce modules to their massive client list of electrical distributors. And, yes – the list is massive.
That approach fits with Epicor’s past acquisition history. Buy the point solution in a priority vertical and upsell to existing customers. In this case, the point solution is eCommerce and the upsell is to electrical distributors on Epicor Eclipse.