Founded 27 years ago in Brazil as a provider of corporate management software for personal computers, TOTVS is now the world’s seventh largest enterprise resource planning company, the first in an emerging country and the absolute leader in Brazil, with a 49.1 percent market share according to Gartner.
Its history of constant, organic growth and efficient market consolidation has been drawing the attention of analysts and investors not only in its home country of Brazil, but also in Europe and the United States.
The company’s history shows a case of true success in mergers and acquisitions. A total of 26 companies were merged into its organisation over the years. Differently from other companies around the world that resorted to mergers and acquisitions as a means to drive growth, TOTVS is not a confederation of companies. TOTVS strives to create a company with a single set of processes and products, under a single brand and distribution structure.
That uniformity enables impressive market results. TOTVS has been growing organically at two-digit rates over the past 10 years, whereas its competitors have been shrinking or achieving barely relevant growth. Ever since its IPO in 2006, TOTVS’s EBITDA margin has expanded 33-fold. The company is one of only 10 listed on the BM&FBovespa Novo Mercado that have sustained higher-than-IPO share prices over time. From its stock market debut to the present day, the company’s share prices have climbed more than 400 percent.
The company’s evolution is justified by its assertive business model. Compared to a soccer strategy, one could say that TOTVS plays with a 4-3-3 team configuration. On defence, the company gains an edge by offering essential products. Nowadays, no company is able to initiate operations without water, electricity, a phone, and business management software.
The second point of defence that contributes towards constant growth is the low penetration currently seen in the company’s targeted market. According to Gartner estimates, only seven percent of Brazil’s 468,000 small and medium companies use management software to assist them with their processes. In Brazil, TOTVS holds 65.6 percent market share in the SMB segment, according to Gartner.
The third point has to do with competition: there are no other companies with the same vocation as TOTVS to serve small and medium corporate clients. This gives the company another strong competitive edge.
For the fourth aspect, there are a series of market factors that have been driving demand for management software, such as the mandatory adoption by companies of the Public Digital Bookkeeping System, a set of fiscal and legal requirements applied by the government in order to increase tax-collection efficiency; the 2014 FIFA World Cup, involving 12 Brazilian capital cities; the 2016 Olympics in Rio de Janeiro; and government programmes like the Growth Acceleration Program. All these factors help drive a greater need for new software investments by companies in TOTVS’s targeted market.
The company’s strategy of keeping the organisation in midfield is structured around three solid pillars – distribution, products, and technology.
TOTVS’s wide range of coverage is achievable especially by its exclusive distribution franchising model, which guarantees the required capillarity for the company to be present in all Brazilian states. Created in the 1990s, TOTVS’s distribution system is made up of internal facilities and a chain of franchises responsible for representing the company in the regions where they are installed.
These channels are operated by local entrepreneurs, who not only expedite customer service, but also add region-specific knowledge. There are currently 53 TOTVS distribution centres, including the six offices operated by the company itself. TOTVS also has franchises in Bolivia, Uruguay, Portugal, Angola, Argentina and Paraguay.
The name TOTVS comes from Latin and means all, everyone – an appropriate name for a company that strives to offer solutions and services to companies of all types and sizes. A healthy midfield is assured through annual investments of more than $80m in research and development. That figure places TOTVS among Brazil’s top five R&D investors. The investment is justified because TOTVS always keeps the software it produces up to date. Historically, the company has been assigning more than 11 percent of its net revenue to internal research.
In addition to the technology itself, the investments also focus on trend and innovation studies. Their goal is to discover the best technologies and the most efficient means to use them, anticipating the market’s needs.
That freedom empowers the company to operate in 10 market segments (healthcare, agribusiness, legal, financial services, distribution and logistics, retail, education, construction and projects, manufacturing, and services). Its segmented solutions don’t only automate back office activities; they also provide applications with specific features for each segment.
Intelligence units were created for each segment, with attributions that include preparing operation strategies, developing relations with the market, identifying strategic partnerships, and sharing segment-relevant information and topics.
TOTVS intends to offer increasingly customised software for each client’s field of operation, respecting the particularities and laws applicable to each segment.
That expertise enables TOTVS to assume the position of Administrative Operator, a smart and challenging concept. More than simply providing software, the company focuses on the best business practices, positioning itself as the supplier of a sum of solutions – going beyond software to include consultancy, technology, and added-value services like BPO, infrastructure, education and service desk. TOTVS currently has 27,000 active clients, and its products are present in 23 countries.
It’s also worthy of note that its products are highly flexible, respecting the systems already in place in the client’s infrastructure. All are scalable and custom-tailored to the specific needs of each client. More than 2,000 new features were included in the most recent versions of its solutions. These features were developed to address the demands of markets and clients, new legal requirements, usability and ergonomics, implementation of technological innovations, and integration.
The new line was designed to promote greater integration among the portfolio’s products, expand the solutions’ segmentation, and introduce the concept of collaboration and integration with social media, through by You, a range of tools targeted at web portal development, content management, mobility, and integration technology.
It was all designed so that companies can expand their presence online and transform it into business opportunities. Always ahead of the competition, TOTVS was the first Latin American country to offer software as a service and cloud computing.
To play well in all positions, TOTVS could not neglect its line of “offence” in order to maintain a permanently assertive business operation. By applying a revenue model based on three main software lines: licenses, services (offered both to new and already existing clients), and maintenance (new versions and help desk), TOTVS maintains a healthy, balanced income.
In its most recent balance sheet, for 3Q10, TOTVS reported its 19th consecutive quarter of two-digit growth and broke new records in net revenue, EBITDA margin, licensing rates, and maintenance. To illustrate the company’s potential, licensing rates advanced by 44.5 percent compared to 3Q09, establishing a new record of $56m. Revenue from services climbed 7.6 percent compared to 3Q09, reaching $55m. And in yet another historical record, maintenance revenues totaled $82.4m, outperforming the same quarter in the previous year by 13.7 percent. These results are proof that TOTVS still has a lot of energy left to play the game.
