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The skilled trades sector is thriving. According to the German Confederation of Skilled Crafts, there were more than 550,000 companies in the German skilled trades market in 2019, with a growth rate of 12% per year over the past six years.
A multitude of new laws, regulations, and requirements—such as the GDPR—are making life difficult for tradespeople and can only be complied with through digital processes.
New technologies and processes in software solutions can, in some cases, significantly simplify the work of tradespeople—especially by extending beyond the boundaries of their own ERP/CAD solutions to connect with suppliers and customers. The generational shift in the skilled trades sector means that tradespeople will place increasing demands on their software solutions in the future.
Software providers must address this trend and offer appropriate solutions to avoid losing customers to the competition.
However, this poses a particular challenge in the “trades” software provider market, which is dominated by small and medium-sized enterprises, as providers are very often small software companies with approximately 25 employees that specialize in specific market niches such as roofers, painters, tilers, carpenters, or electricians.
These challenges include:
Developing a new cloud solution
Parallel further development of the “old” software solution
Ensuring the “security” of the solutions
User-centered interface development
Learning and utilizing new software development technologies
These challenges must be met despite a shortage of software developers, consultants, and sales representatives.
Software companies are also facing another problem: the shift from license sales to subscription-based models driven by cloud solutions. For these companies, this means a loss of revenue for 2–5 years, depending on the pricing model.
At the same time, direct sales must be transitioned to digital sales. This is because, given the initially much lower subscription revenues, direct sales are no longer economically viable.
While ERP providers such as SAP and Microsoft dominate in corporate groups and large enterprises, the situation is different in the ERP provider market for tradespeople. There, companies are faced with many industry-specific software firms, each with different areas of specialization.
The market is currently undergoing radical change. Almost unnoticed, two private equity firms have made visionary investments in these industry markets.
LEA Partners GmbH, a German private equity fund, has made “Trade, but digital” its mission and has acquired established industry software providers such as Taifun, M-Soft, PinnCalc, Bauoffice, and Engel Dataconcept in order to offer future-proof solutions to its target groups. Dominik Hartmann, the new CEO of the newly formed group of companies, comments: “Smaller players, in particular, will benefit from this merger.” By this, he is referring primarily to the smaller industry software providers.
The second new player in the market is Battery Ventures with Craftview. Battery Ventures is an internationally positioned private equity firm, and with Craftview, it aims to create a technology platform. The CEO is Klaus Enke, who also spearheaded the acquisitions of WinWorker Software, es2000 Errichter Software, KS21 Software, OS Datensysteme, Moser, and the Dutch company Gilde Software.
From an M&A advisor’s perspective, this is an interesting way to secure a suitable successor at an earlier stage. Nevertheless, some company owners have significant reservations about this approach, though these are based on outdated views that have long since ceased to apply.
Market consolidation among industry-specific software providers will continue, as corporate buyers know that the challenges faced by small software providers are extremely difficult to overcome.
Ultimately, many IT entrepreneurs are also facing the issue of succession here.
