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Last week, core enterprise apps vendor IFS and its sibling FSM company Workwave celebrated a $10 billion joint valuation after software investment group Hg took a stake, joining existing investors EQT and TA Associates. That's a 3x jump in less than two years, from the €3 billion ($3.5bn) valuation when TA Associates joined with a minority investment in July 2020. I spoke to IFS CEO Darren Roos on Friday to find out the background to the investment, which he told me is focused on sustaining an ambitious growth agenda. He says:

The intent is to aggressively invest in both organic and inorganic growth through the next 10 years. In bringing the investment from HG on board and getting HG involved, there was good alignment from the shareholders on what that journey looks like and our ambition. We have a 10 billion valuation now, and their ambition is, in three years' time for that to be a 20 billion or 50 billion valuation, as we grow the business. We have a plan to do that. We have a strong target acquisition list. And obviously, we have sustained the software growth in the 20-30% range. We believe we can continue to do that, as we just did in Q1.

The war chest for acquisitions isn't affected by the new investment, which buys out some of the holdings of existing investors rather than injecting more cash into the business. EQT remains the majority shareholder, while Hg and TA both have significant minority holdings. EQT first invested in 2015, when it took the then publicly-listed Swedish firm private.

Workwave charts its own FSM path

Workwave span out from IFS in June last year and now operates as a separate company with its own CEO. Roos acts as Chairman. The two companies together posted revenues just under $1 billion in the fiscal year to December 2021, and this year Roos says he expects IFS to achieve $1 billion in its own right, while Workwave revenues will reach about $350 million.

Workwave was acquired in 2017, bringing a cloud-based Field Service Management (FSM) platform into IFS for recurrent services such as pest control, lawn and landscape, cleaning and janitorial, HVAC and similar. Most of its customers are small to medium-size businesses, although some operate large regional or national branch networks. In contrast, IFS retains an FSM offering that serves more complex requirements at larger customers. Roos explains:

All of [Workwave's] customers are doing the same thing in very much the same way. If you're killing bugs, or you're cutting lawns, or you're cleaning a building, all of those customers do it in exactly the same way. The application is very out-of-the-box, they sell on the phone, they deploy on the phone, and they support the customer on the phone. Versus IFS, where a customer would be a Telstra or a Deutsche Telekom, where you've got a very complex set of variables around the skill set of the technicians, the assets that they're working on, the scheduling of where they're going to work, the conditions and 20 other variables — and, none of them do it the same.

That distinction meant that it made more sense to separate the two businesses and their paths may well diverge in the future. Roos elaborates:

The thinking behind carving it out was really to be able to focus individually on what each business needed, from an investment perspective, from an M&A perspective, from a strategic direction perspective. That means that one of the businesses might go on to continue to do a load of M&A and 10 years from now still be owned by the current owners, and another one might be acquired ... They have different paths to walk, and although HG have invested in that holding company for both, that doesn't mean that they will necessarily stay together in the future.

The IFS Cloud journey

For IFS, the strategy is focused on building its presence in the four application segments of ERP, EAM, FSM and ITSM — the latter bolstered by its acquisition last year of Axios and its assyst service management platform. Results for the last financial year show that IFS grew its software revenue 22% in FY21, while cloud revenue more than doubled. Roos says he's proud of the company's performance in acquiring new customers:

Throughout the time that I've been here, in every single quarter, around 50% of our new software bookings, is coming from net new customers. That's been consistent for the last four years ...

The fact that we go out and do the kind of hand-to-hand combat that's required to win these new customers demonstrates the value, because you can't get new customers to buy if there isn't demonstrable value.

At the same time, helping existing customers migrate to new cloud versions of its applications remains an important objective. There are now more than a hundred customers deployed on IFS Cloud, which launched a year ago. Among them, we've written about ongoing roll-outs at new customers Australian manufacturer Geofabrics and a global project at Suzuki Garphyttan. Especially for existing customers migrating their ERP instance, it's a big migration. Roos concedes:

The nature of the IFS instance, and the way that we manage it, and the way that [customers] would have managed it, obviously fundamentally changes when you go to the cloud. They're having to learn new containerization technologies, they're having to learn about our new 'build places' [for lifecycle application management]. That transition is, by definition, a change, and people don't like change.

But the journey is worth it, he continues:

We made these changes so that we can provide them the ability to stay current. We did this so that we can, when there are security vulnerabilities, patch them faster. There are very tangible and compelling reasons why the architecture and build place and the processes that we've introduced of IFS Cloud are significantly better than the old way of doing things. Is it uncomfortable to make the transition for some customers? Absolutely. Does that make it wrong? Absolutely not.

He points out that customers are still free to choose to stay with their existing versions as long as they like, contrasting this stance with competitors who are sunsetting old versions. He explains:

Not a single customer will be able to say, 'Listen, we've been given an ultimatum on a timeline by IFS.' We've done that very deliberately, because we want customers to be able to do it at their pace. We will continue to support them on the platform that they're on. Yes, if they stay on an antiquated platform, it will cost them more money to stay there, because it's going to cost me more money to keep them there. But we're not forcing anyone.

We took a very deliberate decision, that as we go through this journey, we're going to do what is best for the customer, without question. Sometimes, like with any medicine, that's going to be a bit uncomfortable, but we're not going to force people to do stuff.

My take

Impressive numbers from a company that's charting an ambitious growth path. There's still plenty of work to be done, particularly in the migration to IFS Cloud, which at 100+ so far is still in the early stages of adoption by a total IFS customer base of around 3,000. But relations with customers seem to be good and the vendor's commitment to a value engineering approach is helping to ensure there's a business justification behind any project. As Roos puts it:

I don't want stupid money being spent. I want customers being clear on, what is the business pain? Where is the value? How are they going to capture that value? Because the better the understanding they have, frankly, the better we're going to do, because we want to have that engagement, we want to answer that question for them.

As Roos makes clear, Workwave is now operating as a separate company with a roadmap that will most likely see it become part of a larger entity at some point in the future, completing the separation from IFS. As my colleague Jon Reed has pointed out, there's a lot of synergy between Workwave and Acumatica, the small business ERP vendor that EQT acquired in 2019, and which also has an FSM offering that serves pest control customers, among others. I didn't discuss that possible combination with Roos, but it's one option that I'm sure its owners are considering, among others.