By John Park Oct 15, 2020

“Fail fast, fail often” is a mantra often associated with fast growing technology startups seeking to bring innovative products to market. While this high risk, high reward philosophy has been successful for many companies (the triumphs of which have been covered in depth by the press), a much greater number of technology startups fail in their early stages – approximately 70% according to a recent CB Insights report. Furthermore, often overlooked in the technology landscape is the constant innovation and reinvention that is required for established enterprise software companies to stay ahead of these start-ups in a highly competitive marketplace.

Enterprise software companies – with large legacy platforms, established customer bases, sizable employee populations, and billions of dollars of embedded shareholder equity – inevitably think differently about risk management relative to fledgling startups, but both require innovation to succeed. Leadership teams of mature software companies face the complex decision of how and when to trade-off investment in innovation and product R&D with the need for increased profitability through operating efficiency and margin expansion.

At KKR we believe that our ability and willingness to lean into complexity and invest behind long-term ideas is a strategic differentiator for the firm. For our technology strategy within private equity, we have identified a number of opportunities to invest in enterprise software companies and unlock significant value by providing them with capital and operational support to execute a wide range of ambitious initiatives, including long-term product development roadmaps and transformative product acquisitions. Our relationships with the CIOs of our 100+ portfolio companies across numerous industries and geographies provide us with valuable insights on emerging technology trends and customer preferences that inform our convictions and allow us to invest behind complex technology transformation. In addition, the support from our operational team members within KKR Capstone and flexible capital solutions from KKR Capital Markets support our ability to underwrite complex business transition plans and manage execution risk. Our investment in Epicor Software Corporation is an example of this strategy in action.

When we invested in Epicor in September 2016, the company was an established provider of enterprise resource planning (ERP) software for manufacturing, distribution, and retail industries with a great brand and strong operational profile, but flat topline growth. The company had been slow to invest in the emerging shift to cloud based platforms with only one of its three core verticals offering a modern cloud solution. Similar to our past investments in Mitchell and Autodata, we saw the opportunity to bring more product-centricity to the organization and accelerated R&D spend, pulling forward future product roadmaps to modernize the core platforms.

Today, Epicor is experiencing healthy growth and is well positioned for the future, thanks to its strong focus on SaaS and subscription platforms which are driving significant growth in recurring revenue. We recruited new management to focus the business on growth, and made significant investments early in our hold period, which resulted in the successful launch of modern cloud products for both the distribution and retail segments. In addition we completed multiple acquisitions to expand the company’s addressable market and expand its technology capabilities. Epicor today has the ability to provide customers with a flexible choice between on-premise and modern cloud delivery of software solutions for all three key business segments. The company’s cloud business has grown from less than 15% to almost 50% of bookings over the past four years under our ownership.

Recent disruption from the COVID-19 pandemic has proven the value of mission critical enterprise software systems and the importance of cloud delivery will inevitably increase over time. Our investments to modernize Epicor’s technology platforms and instill a culture of innovation has served the company well during these trying times as Epicor has continued to outperform. As Epicor transitions to new ownership we are proud of our partnership with the management team, thankful for all we have accomplished together over the past four years, and excited to support them as they embark on an exciting new chapter of growth.