Table of contents
Business management software relates to applications used to manage and streamline day-to-day administrative functions of businesses. Such functions include accounting, tax reporting, payroll and human resource (HR) management. This research focuses on European businesses that develop proprietary software systems for the aforementioned functions.
The competitive landscape of business management software developers remains fragmented across segments. Regulatory and language barriers across regions inhibit the organic expansion of global ERP giants, thereby providing protection to local incumbents and players offering proprietary technological features. The European market is set for further consolidation as leaders aim to build end-to-end finance and HR management platforms via continuous acquisitions, both domestically and abroad.
The sector attracts significant interest from financial buyers, with ~70% of identified assets being sponsor-backed (August 2022). We believe this is mainly attributable to the lucrative bottom-lines of identified software developers and the high stickiness of customers. Furthermore, some businesses have the potential to serve as strong platforms and to capitalise on significant buy-and-build opportunities available in the market.
While business management software developers have a limited ecological footprint, they can empower small- and medium-sized business customers by making sustainability reporting more accurate and less time-consuming. At the same time, the structural shortage of talent across the broader software industry paired with high employee turnover rates remain key issues, with industry leaders aiming to boost tenure by participating in the STEM education of prospective employees from early on.
Gartner (July 2021) estimates that global enterprise software spending reached ~$529bn in 2020, forecasting it to grow to ~$669bn by 2022 at a CAGR of ~12.4%
According to Sage (November 2021), the global market for accounting, financial, HR and payroll applications will be worth ~$38bn in 2022 and ~$40bn in 2023. The cloud segment of the market is projected to grow ~12% YoY, while the on-premise segment will contract by ~1%
Statista (July 2022) valued the European enterprise software industry at ~$56.7bn in 2021 and expects the market to grow at a ~7.0% CAGR to reach ~$85.1bn by 2027
Customer transition from on-premise to cloud-enabled systems. The recurring nature of SaaS services and their seamless scalability facilitate improved customer lock-ins and more upsell opportunities to business management software developers (interview by Gain.pro)
Workforce dynamism will drive demand for HR software. While younger generations have a higher preference for job switching, changing labour market needs will also require ~75m people to acquire new skills and change their occupation between 2016 and 2030 (Attuned, October 2020)
Increasing technological capabilities will expand the total addressable market. As accounting, HR and payroll software tools become more advanced, SMEs and large corporates can further reduce in-house support functions that are normally occupied with repetitive administrative tasks (ELMO, September 2017)
The shrinking European working-age population will inhibit business software demand. A reduction of ~30m workers from 2020 to 2030 (-1% CAGR; United Nations, July 2022) is expected to proportionately affect the HR and payroll software markets (Attuned, October 2020)
Strong technological competition and limited differentiation between offerings may curb the total addressable market and profitability upside. For instance, open-source systems with freemium features (e.g. Odoo; TechCrunch, July 2021) have demonstrated strong traction among SMEs looking for cost-effective alternatives, thereby targeting the core customer group of identified business management software developers
Growing cybersecurity threats will trigger additional costs with no upside. HR and financial data remain among the most commonly compromised data types (Info Security, October 2019), with increasingly costly data breaches (IBM, July 2022) posing ever-growing risks for related SaaS systems
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