Mar 10, 2021 · 21m · top-founders
Epicor Targets $1b Run Rate, 50% Pure SaaS. $300m SaaS ARR Today.
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this executive interview, Epicor CEO Steve Murphy discusses the company's transformation into a cloud SaaS leader approaching a $1 billion run rate, detailing private equity buyout dynamics, debt financing strategies, and key SaaS operating metrics with host Nathan Latka.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Nathan holds 33.9% of the talking time here. How this is scored →
Nathan as informed peer 6.3 Guest teaching 1.6 Guest disagreement 0.3 Nathan pushing back 1.5
speaking balance: gold is Nathan, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 10:36 Murphy defends legacy valuation against frothy VC multiples
Murphy counters Latka's premise that Epicor was undervalued relative to high-multiple VC darlings by highlighting market exuberance and the genuine friction involved in converting legacy installed bases.
Hardest push from Nathan ▶ 13:41 Latka drills down on SaaS net dollar retention rateLatka refuses a vague mention of strong SaaS retention and directly corners Murphy to state if the figure is above 140% NDR.
Biggest teaching moment ▶ 14:58 Murphy teaches the private equity bond plus call option modelMurphy breaks down how institutional PE sponsors structure buyouts, using residential mortgage leverage and bond-plus-call-option analogies to explain how debt is safely serviced with recurring software revenues.
Nathan holds their own ▶ 14:14 Latka recites Epicor's exact debt tranche and interest spreadLatka demonstrates deep domain expertise by citing Epicor's exact $1.7B first lien loan terms priced at 320 bps over LIBOR and its maturation schedule.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Nathan as informed peer | Guest teaching | Guest disagreement | Nathan pushing back | Why |
|---|---|---|---|---|---|---|
| Preview: Steve Murphy on Top-Line Growth | 4 | 1 | 0 | 0 | Latka opens the show with an ad read and gives background on Epicor's 1971 founding, asking Murphy to summarize Epicor's product suite in one sentence. Murphy provides a straightforward overview of managing backend systems for physical supply chains. | |
| The 2017 Cloud Pivot and Approaching $1B Scale | 7 | 1 | 0 | 0 | Latka demonstrates detailed financial literacy by breaking down Epicor's 2009 public revenue lines ($70M license, $128M consulting, $191M maintenance) and PE ownership history through Apex and KKR. Murphy explains how he was hired to lead the cloud transition. | |
| Revenue Mix Shift and Accelerating SaaS Bookings | 6 | 1 | 0 | 1 | Latka asks about the mix shift and top-line growth to see whether SaaS expansion is merely cannibalizing on-prem maintenance revenue. Murphy details the progression from 90/10 on-prem to a 60/40 SaaS booking split. | |
| Valuation Multiples and CD&R's $4.7B Acquisition | 7 | 2 | 1 | 3 | Latka challenges the $4.7B acquisition valuation by comparing Epicor's metrics to frothy 60-65x VC multiples for UiPath and Databricks. Murphy provides perspective on market exuberance versus the real friction of migrating on-prem legacy customers. | |
| Private Equity Bidding Dynamics and SaaS Net Retention | 6 | 2 | 1 | 4 | Latka probes why PE buyers like Vista did not outbid CD&R and presses Murphy directly on whether Epicor achieves greater than 140% net dollar retention. Murphy confirms NDR is comfortably over 100% without revealing the exact metric. | |
| Managing Debt Leverage and Financial Engineering in Private Equity | 8 | 3 | 0 | 2 | Latka cites specific debt covenants including Epicor's $1.7B first lien loan at 320 bps over LIBOR to ask how PE firms extract returns. Murphy explains the private equity formula using a bond plus growth call option analogy and recent debt repricing. | |
| Balancing Long-Term Equity Compensation and Liquidity | 7 | 2 | 0 | 2 | Latka references a $560M loan proceed dividend paid out to KKR and asks how executive teams protect their own equity compensation in long-term PE cycles. Murphy explains balancing 3-to-4 year liquidity events against balance sheet health. | |
| Benchmarking Cloud Revenue for Public Market Entry | 5 | 1 | 0 | 0 | Latka wraps up by asking what threshold of pure SaaS revenue Epicor needs to target public markets or a SPAC. Murphy names a specific benchmark of roughly half their recurring revenue before reflecting on career lessons. |
Statements from this episode (13)
Epicor CEO: Epicor will hit $1B revenue this year with 25-33% cloud
“We've built that business into about a quarter of a billion dollars. We'll be about a billion dollar top line business this year. And between a quarter and a third of that now is the cloud.”
Murphy: Epicor quarterly bookings shifted from 90% on-prem to 60% SaaS
“Four years ago in a given quarter, we would book a 90% on-prem. 10% SAS or less. In the most recent quarter, it was a sixty-forty split. It's flip-flop. So, 60% SAS, 40% on-prem.”
Murphy: Epicor SaaS bookings will top out around 80% of total
“I think that for us a 60, 40 split will probably move towards 80, 20. I don't know if it'll ever go much beyond that because I think there'll always be a segment that likes to be do-it-yourselfers. When it comes to managing the ERP system, that's my guess.”
Murphy: Epicor SaaS grows 30% to 40% while on-prem remains flat
“We've typically seen 30 to 40% growth, sometimes more in that SAS business, and it's most of our growth. And then with the on-prem Seeing it be roughly flat. It's the on-prem business and the maintenance business, it isn't contracting. It isn't getting smaller…”
Murphy: Cloud ARR multiple inflection occurs at 33% to 50% of revenue
“There's kind of a within your question, I think there's a saturation point at around third to a half of your ARR. When you get to that point being cloud, people do have to say you're kind of a cloud business.”
Murphy: Many SaaS companies trading at 60x ARR will disappoint investors
“Also true that a lot of these companies won't live up to it, and it'll take a year or two before people realize, hey, you know, they're nowhere close to being worth what we thought.”
Epicor CEO: SaaS Net Dollar Retention Is Well Over 100%
“We aren't that high, but we're well over a hundred. I don't think we would share exactly what it is, but I'd say it's demonstrably higher than old fashioned maintenance, which is nice, right?”
Murphy: PE buyouts succeed when structured as bonds with call options
“Demonstrate over a period of maybe a year and a half or two years, six to eight quarters to the investment community that you've got a, it's kind of like a bond with the call option. You've got this bond, which is the recurring revenue stream. The call options…”
Murphy: Epicor Refinanced Over $2B in Debt to Cut Rates 125 Bps
“In the last six months, and this is all, you know, public record. We went back into the markets and we're able to refinance the first lane and do really well on it. And we had earned the right to do that... We didn't go out and, you know, get a dividend or do …”
Murphy: Epicor has 4,000 employees, with 100 heavily equity-compensated
“We've got 4000 employees, but a hundred or so, most of what they make is in stock or a big portion of what they make is in stock.”
Murphy: PE-backed firms need liquidity events every 3 to 4 years
“I think where people get in trouble is when they want to create liquidity too frequently in private equity, you can't do it every year or every other year. Maybe it's every three years, or if they think they can wait five to 10 years, then you lose good people…”