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Tackling the ERP conundrum: to stay put, enhance or replace?

Crowe Horwath LLP advises private equity groups on their portcos' IT systems

Nov 28, 2012, 10:23 ET from Crowe Horwath LLP

CHICAGO, Nov. 28, 2012 /PRNewswire/ -- For private equity groups, whether or not to upgrade the enterprise resource planning (ERP) system of a portfolio company (portco) is a major decision. When making information technology (IT) investment decisions, groups need to carefully consider several critical factors, including how the expenditure will serve the group's overall investment thesis and provide measurable business return before the portco is sold. Crowe Horwath LLP, one of the largest public accounting and consulting firms in the United States, looks at what private equity groups should take into account when determining an ERP strategy.

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ERP systems process an organization's transactions, helping to manage areas such as accounting, inventory, manufacturing, sales, human resources and business reporting, all from a single, integrated framework. These software systems are commonly integrated into other software such as customer relationship management (CRM), electronic data interchange (EDI) and business intelligence (BI), resulting in an often complex and expensive IT system.

"In the late nineties, most companies upgraded or replaced their ERP systems to prepare for Y2K. Since then, obviously there have been significant improvements in the technologies and functionalities available," said Doug Schrock, the consulting advisory services leader for Crowe. "With an average life of 12 to 15 years for most ERP systems, and companies experiencing better financial performance following the worst of the recession, we're seeing a large number of clients ready for an upgrade."

Schrock noted that when evaluating a portco's ERP system, a private equity group has three basic options: stay put with what it has, enhance the system with upgrades, or replace it with a leading ERP system. When evaluating the options, private equity groups should focus on three primary considerations:

  • Investment thesis. What does the private equity group expect to realize from its investment, and how would an ERP upgrade support the thesis? Does the time horizon before the sale of the portco accommodate the time and cost of an ERP upgrade? Will the state of the current system be seen as a major risk to a potential buyer?
  • Unmet business needs. Do the shortcomings of the current ERP system constrain it from efficiently supporting the business? Are the system's capabilities inhibiting the portco's ability to expand? Are there significant internal control or unresolved software integration issues?
  • Organizational capability. Does the portco have the ability to take on a disruptive and costly project of this scale? Are the right leaders in place to guide the company through the necessary procedural and organizational changes to gain the most from an ERP switch?

"If the investment thesis for a portco is predicated in part on acquiring and integrating additional companies into the platform, the case for an ERP replacement is generally much stronger," said Schrock. "However, if the company's problems are linked to the ERP system, but not caused by it, addressing non-ERP shortcomings might produce significant results for a fraction of the cost."

Schrock added that if the private equity group is planning to sell the portco in the next 24 months, time and money are often better spent on procedural performance improvements than technology.

To listen to a webinar recording on this topic, or for more information on other webinars for private equity groups, please visit

About Crowe Horwath
Crowe Horwath LLP ( is one of the largest public accounting and consulting firms in the United States. Under its core purpose of "Building Value with Values®," Crowe uses its deep industry expertise to provide audit services to public and private entities, while also helping clients reach their goals with tax, advisory, risk and performance services. With offices coast to coast and 2,600 personnel, Crowe is recognized by many organizations as one of the country's best places to work. Crowe serves clients worldwide as an independent member of Crowe Horwath International, one of the largest global accounting networks in the world, consisting of more than 150 independent accounting and advisory services firms in more than 100 countries around the world.

SOURCE Crowe Horwath LLP

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