Gryphon banks on supply chain software demand in Rootstock Software deal

'The demand for modern cloud ERP systems in the manufacturing and distribution space is so strong and growing so fast that the organic opportunity at Rootstock is more than enough to excite any investor,' said Gryphon's Jon Cheek.

Complexities within supply chain management that were laid bare during the pandemic and are now nudging companies to modernize and upgrade their logistics departments have created an investment opportunity for Gryphon Investors in cloud-based Enterprise Resource Planning (ERP) software, the firm said.

The San Francisco-based private equity firm recently made a majority investment in Rootstock Software, a provider of ERP software to manufacturing, distribution and supply chain organizations. Salesforce Ventures, the venture capital arm of the customer resource management software maker, and Rootstock’s management team are retaining minority stakes. David Stephans, who served Rootstock as an executive for nine years, moves to be the CEO, while founder Pat Garrehy joins the board of directors.

PE Hub spoke with Jon Cheek, deal partner and head of Gryphon’s software group, about the investment.

Based in San Ramon, California, Rootstock is built on the Salesforce platform. Cheek described the ERP software as the “central nervous system of a manufacturer or distributor” for its ability to help businesses link customers, suppliers and employers to critical data across their organizations at any time and from anywhere.

Jon Cheek, Gryphon Investors

“The demand for modern cloud ERP systems in the manufacturing and distribution space is so strong and growing so fast that the organic opportunity at Rootstock is more than enough to excite any investor,” said Cheek.

Complexities emanating from snarled global supply chains pushed some companies nearly to the breaking point, a situation that forced some to upgrade their technology and find new software that will modernize their operations.

Rootstock serves a blue-chip client base across North America and international markets, according to the company.

Cheek disclosed that Rootstock had been on Gryphon’s radar for quite some time, and when Garrehy and his investors decided to find a new home, the PE firm quickly stepped in. Gryphon was attracted to the company’s “deep sector-specific expertise and functionality that set it apart from generalist ERP providers.”

“Our interest in Rootstock came not only from its modern cloud architecture and robust supply chain functionality, but also its ability to further benefit from some of these tailwinds through its seamless interoperability with Salesforce’s robust mobile features and collaboration tools like Slack,” he added.

As companies move to modernize their supply chains, industry experts warn that some may over-invest in this space to a point where it will create problems for their operations. Cheek said EPR services are designed to help organizations in different scenarios.

“It doesn’t particularly matter whether a customer is over-invested or under-invested in supply chain logistics,” Cheek said. “If there is complexity in the supply chain, there is a need for software to manage that complexity either way.”

Among other growth strategies, Gryphon is banking on its M&A experience to help uncover avenues to scale the business inorganically.

Regarding the exit options, Cheek said Gryphon is not in the business of “quick flips” but with hard work and thoughtful strategic execution, Rootstock “will be attractive to a wide variety of potential suiters down the road.”

Turning to the challenges posed by high inflation and high interest rates that often hit distributors and the logistics companies the most, Cheek said Gryphon will be focusing on partnering with high-quality companies with defensible business models.

“Rootstock provides its customers with mission critical, high-ROI software that will drive business outcomes regardless of the health of the economy” he said. “Our focus is on thoughtfully choosing a small handful of levers that will drive growth in any market condition and ensuring that we nail the execution of those initiatives.”