It came as a bit of a surprise to see the announcement that Michigan-based Plex Systems is being acquired by plant automation vendor Rockwell Automation today. Plex literally wrote the book on cloud-based ERP, having been doing this since the late 1990s.

Many of their competitors only recently embraced cloud and/or multi-tenant cloud technology. Plex has developed deep manufacturing expertise in the automotive sector along the way.

Plex had been shopped in prior years as prior owners entertained a sale as a potential liquidity event. Private equity firm Francisco Partners bought Plex in 2012. In their announcement of the sale this morning, Francisco Partners stated that: "Plex More Than Quintupled Subscription Revenue Under Francisco Partners' Ownership." There will be some celebrating at Francisco Partners today, for sure.

The deal will be very complementary and should be accretive in a relatively short time. The price tag is $2.22 billion and this will be financed by a combination of $1.9 billion in debt and $300 million in cash on hand. The financing will be a mix of short and long-term debt. Rockwell Automation should be able to get this debt financing on favorable terms given the low interest rates accompanying commercial borrowing today.

The accretive aspects of this deal include:

• Plex will gain access to Rockwell Automation's extensive global sales and support network. This is a material enhancement to Plex's predominately North American focused organization.
• Rockwell's extensive OT (operations technology) and plant/controller automation tools and technology tie well with Plex's IT and other technologies.
• Rockwell should be able to introduce Plex into more geographies, more verticals and into its significant customer base.
• Rockwell can take advantage of Plex's considerable cloud operations knowledge and knowledge of building multi-tenant cloud apps, cloud applications development and cloud data center operations.
• Plex's new modular product architecture and the ability to sell subsets of its suite should be an asset to Rockwell.
• The potential for Rockwell Automation to move further into Plex verticals like Tier 2/3 automotive suppliers, pharma, etc.
• The potential for Plex to move more upmarket by attaching to some of Rockwell's large enterprise customers in Rockwell's verticals.
• Plex can integrate Rockwell's new SaaS acquisition, Fiix into its product line and cross-sell it to their install base. Fiix is an enterprise asset management solution.

On the investor call this morning, we learned that:

• Rockwell Automation has been looking at Plex for some time.
• Plex will help Rockwell Automation in its planned growth from being a $5.9 billion firm to a $9 billion revenue firm. Likewise, Plex will contribute to the growth of the firm's ARR.
• Plex apparently was close to Rule of 40 (R40) compliance.
• Rockwell Automation was impressed with Plex's high customer retention rate and its focus on customer satisfaction. Plex's CEO, Bill Berutti commented that Plex's 500 or so employee headcount is roughly 40% focused on product development and 60% on customer success.

My take

This deal fundamentally changes the ERP landscape. Now, ERP without strong, tightly integrated OT technologies is insufficient for manufacturers. It also casts doubt on the wisdom of ERP vendors continuing to sell on-premises or hosted, single-tenant cloud versions of their solutions when an extraordinarily complete solution/stack from a major player exists. Moreover, Rockwell Automation's knowledge of the shop floor and production equipment likely dwarfs that of all other ERP players. Again, this is the beginning of a potentially big deal.

Culturally, these two firms should click. Both firms are Midwest-USA based and both are focused on customer success.

Plex will definitely benefit from this, especially as it will expedite their entry into new verticals and will expand their geographic coverage and market penetration.

While not discussed on the analyst call, we believe Plex's expertise in advanced technologies (e.g., smart glasses) will also drive sales of the combined firms.

It will be interesting to see how other ERP vendors will respond. We expect some will try to cast FUD on the deal; however, trash talk cannot replace solid capabilities.

We will get a fuller briefing this coming Monday.

Addendum by Jon Reed, June 28, 2021

On Monday, June 28th, Plex and Rockwell leadership hosted an informational media and analyst call. Most of the questions answered are already covered off by Brian Sommer in this piece. There are, however, some unresolved questions of interest. As you can see from the reader comment thread below, speculation about Rockwell Automation's status as an SAP customer is of interest - as is Plex/Rockwell's own ERP go-to-market plans from here. As Sommer put it in an email:

Rockwell Automation is an SAP customer. What happens to that relationship since Plex is a direct competitor to SAP?  Will Plex become the ERP of choice throughout Rockwell Automation?

That question was not addressed on this call. However, Plex's approach to MES versus ERP, particularly in the large enterprise, did get some attention. As Plex CEO Bill Berutti told us:

We absolutely have a strong ERP platform. But as I think all in the analyst community know, every single Plex customer is first and foremost an MES customer, and then in many cases also an ERP customer.

Berutti called attention to the success of Plex's modular strategy, a strategy I alluded to in the reader comments below:

We also deploy the Plex solution in a modular fashion, meaning that today you can just be a QMS  customer, or just an MES or supply chain customer.

Berutti went on to make a mid-market versus large enterprise distinction:

We tend to provide a complete business system for a small and medium manufacturing business, meaning that they're using the complete Plex solution, including ERP. And it's really their single cloud-based solution for running the company. As we've moved up market, half of our revenue now comes from multi-billion dollar enterprises that primarily use us for either for standalone MES, or for what we refer to as plant-based ERP, in combination with standalone MES. And, and that, of course, provides unique value but is almost always integrated up into largely SAP and Oracle for corporate level ERP.

Brian Shepherd, SVP, Software & Control for Rockwell Automation, doesn't see that strategy changing. He added:

We love that flexibility. Frankly, it allows us to offer what our customers need... Rockwell has no designs on competing with SAP or Oracle for enterprise ERP. That's not been the heritage of Plex; we're not going to take it there. We really like the modular approach and the breadth of the offering.

Those quotes add some clarity to the reader comments. As I wrote below, Plex's modular play thrives on "land and expand," rather than ERP rip-and-replace. However, I have to believe Plex's sales team is salivating at taking this MES + Plex plant ERP into their Rockwell Automation customer base. You can bet there will be plenty of knocking on SAP/Oracle/Infor customer doors in that regard. I believe that's what Sommer means when he talks about this acquisition shaking the ERP market up a bit.

Finally, one more question that stands out is the potential integration between Rockwell Automation's prior Fiix acquisition and Plex. Two cloud native manufacturing products, one centered around maintenance management (Fiix), and one with a modular lineup (Plex) that could generate plenty of predictive maintenance data: the opportunities were not lost on the leadership team that fielded this call. But Sommer has questions without firm answers yet:

Help us understand how these two companies and product lines will be integrated? Will the two firms be merged into one? Will they both converge to a single tech stack and architecture? What’s the timetable to merge their data models into a single data model?

Those will be questions worth tracking after this deal is completed. By then, I'm sure we'll have more pesky questions to add to the mix.