The European ERP software market is dominated by SAP Group, Microsoft and Oracle, which set a rapid innovation pace for the whole industry. Small and mid-sized ERP generalists cannot keep up due to lower R&D budgets. These players are expected to either be acquired by larger competitors or to give up their proprietary software development capabilities in favour of less capital-intensive software implementation activities. Players with specialised niche expertise (e.g. specific industry focus, business vertical) stand a better chance at remaining competitive due to their entrenched market positions and sector-specific knowledge. Herein, ERP software developers focusing on industrial clients are even more protected, as their industry-specific knowledge and mission-critical suites serve as additional levers for customer lock-in.

Interest from financial sponsors has been high, with ~60% of identified assets being sponsor-backed (as of April 2024). Investors are primarily drawn to (i) the ongoing digitisation trend among SMEs, (ii) players' strong top-line visibility from recurring subscription fees and (iii) the market's attractive profitability ratios (~20-25% median EBITDA margins 2018-2022). Herein, listed players SAP Group, Software AG Group, Lemonsoft and Comarch Group traded at an LTM EBITDA multiple of ~23.5x, ~22.2x, ~14.2x and ~8.1x, respectively (Finbox, April 2024). Some industry executives (interview by Gain.pro) are sceptical about investors' intentions to cut costs, employee benefits and management teams.

The ESG agenda of ERP suites focuses on environmental and governance topics. From an environmental perspective, operating data centres that host ERP suites contributes to significant energy consumption and CO2 emissions. To prevent these emissions, SAP Group-owned data centres power their operations using 100% renewable energy by investing in EKOenergy-certified energy attribute certificates, for example. Governance risks in the ERP industry mainly revolve around data privacy breaches and system disruptions. ERP systems are attractive targets for cyberattacks given the magnitude of sensitive information they hold.