Consolidation in construction IT market likely, predicts Tekton

There is still a further shake-out to come among the numerous IT software providers who currently trade with construction firms, says John Marchant, head of product management at Tekton.

Software group Tekton was bought by Sage five months ago.

Sage has 731,000 UK users of its basic accounts software package, with 40,000 of this number being in construction - mostly at the bottom end of the sector with smaller ‘one man and his dog’ outfits.

Sage wanted to establish a presence in the mid-to-top section of the construction market and hence the purchase of Tekton whose software packages are:

• Sage 50 – used by small businesses with an average turnover of £500,000 a year;
• Sage 200 – for slightly larger enterprises with an average annual turnover of £2m;
• EVision – where turnover runs to £10m on average, and employee numbers are in the 50-499 band;
• Intuita – used by large companies with 500-plus employees, the average turnover being £430m.

Sage approached Tekton last December and found the owners ready to sell. They were: Richard Beaton, the majority owner at that time; the venture capitalists who had backed Beaton’s management buy-out seven years ago; and the company’s senior management team.

“The construction software mid-market is fragmented with no one dominant player,” says Marchant. Occupying the top space he points to the three £10m-a-year turnover businesses: Coins, Causeway and RedSky, while adding that there are also other “very small vendors”.

Sizeable 'mid-market' for construction IT

Marchant puts the construction 'mid-market’ annual IT spend at £200m.

“Sage had 40,000 construction customers but they were mainly in the sub-£20m-a-year turnover sector,” says Marchant. “The acquisition positions Sage in the mid-market, the band between turnover of £20m and £1bn.

“There are still more than 20 little houses writing financial systems for construction groups, each of them writing their own version of the purchase ledger, and VAT changes, all working away to stay up to date.

“The difference with the bigger brands is that they have got the funds to deliver these basic changes and still have sufficient R&D funding left to make improvements.”

Marchant believes that the bigger IT software players with the well-known brand names are all moving their products forward because contractors increasingly want IT tools that offer them better predictability of project out-turn.

Five software houses compete for construction top end

At the top end, Sage/Tekton is competing mostly with Coins, Causeway and RedSky, though another name, IFS, which is strong in the manufacturing sector, is making a stronger pitch having now added construction functionality to its software.

Also, right up at the very top of the tree are the two ERP Tier 1 vendors - SAP and Oracle, the latter having consumed two of its former rivals, JD Edwards and Peoplesoft. Marchant describes this group’s software as being “powerful but complicated”.

Also knocking on larger contractors’ doors are ERP Tier 2 vendors such Dynamics, Aggresso and IFS.

Tekton has ERP functionality in its Intuita software and also in EVision given that the latter was developed using Dynamics NAV, an ERP software from Microsoft.

Housebuilders might be shell-shocked at the way their market has collapsed so rapidly in the past six months, but some are still looking to upgrade their IT software.

“We have had eight put their plans on hold,” says Marchant, “yet we have also signed up three new housebuilders in the last two months.”