A big acquisition at Epicor Software Corp. three years ago planted the seeds for Laguna Hills-based startup M2 Technology Partners LLC.
Founders Mark Duffell and Mike Piraino worked together for five years at the Irvine-based maker of business software before starting private equity-backed M2 Technology Partners last month.
They first brushed shoulders with their future backer, Menlo Park-based Accel-KKR LLC, an investment fund backed by private equity firms KKR & Co. of New York and Accel Partners of Palo Alto, in 2005.
That’s when Epicor bought Newburgh, N.Y.-based CRS Retail Systems Inc. from the companies for $121 million.
Piraino, Epicor’s former chief financial officer, and Duffel, its former president and chief operating officer, were part of the company’s strategic planning committee and worked on acquisitions.
After a simultaneous exit from Epicor earlier this year, the pair formed M2 Technology Partners with the goal of buying up and combining smaller companies to create a privately held business software maker.
“Our goal is to build a world-class software company through a number of acquisitions over time and provide operational support through day-to-day interaction with these businesses,” Duffell said.
It’s a strategy the two honed at Epicor, where they oversaw roughly 10 acquisitions in the past five years.
“If you go back to the time Mark and I spent at Epicor, we were very acquisitive within a public company structure,” Piraino said. “But our goal was always the same from one acquisition to the next,to improve margins, accelerate growth and take out redundant costs and create a more productive environment. We are essentially doing the same thing in a private equity environment.”
Accel-KKR is set to provide the funding for the acquisitions, but didn’t disclose how much.
Duffell and Piraino are going to do all the leg work required to integrate the acquisitions and run the company.
They will also serve as advisers to Accel-KKR and be members of its operating advisory committee.
“M2 is essentially an acquisition vehicle,” said Ben Bisconti, managing director of Accel-KKR. “It’s a company that we will continue to fund but that they have ownership of.”
Accel-KKR also will have a stake along with Duffell and Piraino, who declined to give specifics.
Its strategy is different from Accel-KKR’s, which traditionally has backed existing management teams at the companies it buys.
M2 Technology Partners plans to “look at companies where the founders are ready to bow out or where the management team needs more operational support than Accel-KKR was able to give them,” Piraino said.
The two wouldn’t divulge at which point in the past few years the idea crystallized into a business plan.
At some point, meetings and phone conversations with Accel-KKR’s Bisconti turned into something more,a job opportunity.
“We deal with a lot of folks in the software world as a buyer and seller of assets,” Bisconti said. “I think both these guys impressed us as very capable operators and guys who have a lot of energy and a lot of integrity. That’s just some of the reasons we stayed in touch.”
Both men left their posts at Epicor in May, shortly after Chief Executive Tom Kelly was chosen to replace longtime leader George Klaus.
Some say Duffell was slighted because he was considered the clear No. 2 to Klaus.
Klaus retired but still serves as non-executive chairman at Epicor.
Duffell had worked at Epicor for a dozen years.
There’s no bad blood, according to Duffell.
“I’ve worked with George (Klaus) for 14 years,” he said. “He was a personal friend as well as my boss.”
He said the new venture was a chance that couldn’t be passed up.
“This opportunity was just too good to pass by, to be frank,” Duffell said. “I jumped at the opportunity to create a software company in the private domain.”
Duffell and Piraino concede that the past few years at Epicor, a publicly traded company with $430 million in yearly sales and a recent market value of about $415 million, were increasingly tough due to stricter federal regulations.
“There were some things that I’d have liked to have done differently to create more value,” Duffell said. “There are acquisitions in the private world that make sense that in the public world don’t make sense at all.”
Piraino seconds the appeal of working at a private company after five years as Epicor’s finance chief.
“Almost my entire career has been in a public company environment,” he said. “The idea of working on the private side and making decisions on a more long-term basis was attractive.”
M2 Technology Partners said it already has “a pipeline of potential acquisition targets,” but it declined to elaborate.
It’s looking to buy software makers with $30 million to $150 million in sales that cater to the government, the healthcare industry, schools and other technology companies.
“We are looking at spaces that are ripe for consolidation in industries where there is not already a major player controlling it,” Piraino said.
The two plan to keep the holding company “lean and mean.”
“Our goal is to acquire companies, not to build an infrastructure,” Piraino said. “Our goal here is to have essentially all the action at the company level. We can take a much more hands-on approach that way.” n
