Job shakeout likely in wake of Mincom acquisition

Private equity firms used to bypass compliance laws

The acquisition of local ERP vendor Mincom by private equity firm Francisco Partners is likely to put more than 1,000 jobs at risk.

Long regarded as Queensland's favoured son, Mincom announced this week that US investment firm Francisco Partners has launched a $315 million takeover bid.

Currently the sixth largest ERP vendor in the world, Mincom employs more than 1,300 staff with its headquarters based in the sunshine state.

Hydrasight research analyst Michael Warrilow said employee levels will need to be sliced away to increase profits.

"The real nut of this is that [smaller companies] are acquired by a more aggressive parent which inevitably leads to cost cutting which is part of gaining investment returns," Warrilow said, adding "jobs cuts are [an] absolutely essential part of this strategy".

Warrilow's comments are in direct contrast to claims by Mincom CEO Richard Mathews that there will be no job losses and that the company's headquarters will remain in Australia.

Matthews said he is keen to combine Mincom and Francisco Partner's merger and acquisition teams to pursue deals around the globe.

He also reassured customers by stating that product roadmaps would remain largely unchanged, with some rolled into shared services.

But Warrilow said if Francisco Partners wants to make returns, it will move some of the back-end services into shared services.

Interestingly, Warrilow said acquisitions by private equity firms such as Francisco Partners in the IT industry is part of a much larger global trend.

He said it is partly driven by the rapid increase in compliance laws in recent years.

"Smaller companies are attracted to acquisition proposals due to the difficulty in adjusting to compliance laws such as ASIC and Sarbanes-Oxley, and the potential to operate more aggressively under a wealthy parent company," Warrilow said.

"The difficulty in becoming compliant with these laws is making acquisition by private equity firms very attractive as an exit strategy because they don't have to worry as much as public listed companies about complying with the Security Exchange Commission (SEC) rules in the US or local laws in Australia."

He warned that private equity firms are "less accountable" than public companies because they have a reduced shareholder base.

"These privately listed companies have a small number of select shareholders which means they are less accountable; they can decide to reduce the amount of investment in an asset, which essentially could affect products such as reducing updates or moving maintenance and development offshore," Warrilow said.

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More about Australian Securities & Investment CommissionFrancisco PartnersHISMincomSECUniversity of QueenslandUniversity of Queensland

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