Are you Ready? It's Time for M&A Activity to Heat Up This Fall (Part 6)

In the final two columns in this now long-winded series, I thought I'd offer up a few last thoughts on six of the most attractive and probable acquisition targets in the Spend Management world in the next 12 months (3 in this post and 3 in a subsequent one). Since I have already flogged the dead acquisition horse ad nauseum with Ariba and its potential suitors, I'll leave them out of this particular discussion. But who else could make for an interesting target? I'll limit this list to software and/or content providers that have hit at least two of the following criteria that are important to many potential acquirers (besides an innovative product and customer set).

First, they must have achieved a $10 million a year run-rate (or have reasonable short-term visibility to hit this threshold). Second, they must have either a strong recurring legacy revenue stream and/or a new proven asset that they're well under way to monetizing. And third, they must be a logical fit with multiple potential players for more than just financial reasons. As a final observation, none of these would make for blockbuster deals (e.g., SAP / Ariba, IBM / Emptoris), but they could prove to be critical assets for a broad range of potential acquirers

So who is on my list? In no particular order: Iasta, Ketera, Zycus, CVM Solutions, Aravo and one mystery company which I'll leave you in suspense waiting for.

Iasta - Iasta is a natural addition first name on this list given the fact it's the last free-standing and rapidly growing sourcing provider in the market. Their customers, in virtually all cases, are very happy with the product. They continue to be innovative (e.g., contract management, spend visibility relationships with BIQ and Spend Radar, etc.). They don't have venture capital baggage (Iasta is owned by the management team). And they appeal to everyone from the lowest common denominator buyers (e.g., "let's give, er, one of them there reverse auctions a try") to some of the more sophisticated sourcing consultants whose names I can't mention.

Are there any drawbacks to Iasta as a target? The only one I can think of is the fact that no acquirer could get their cost structure down further (Indianapolis labor costs are one of the best kept secrets in North America). I suppose I'd also toss in that their services revenue is picking up considerably (which might make a valuation slightly less high relative to the close to 100% SaaS/software revenue model they enjoyed until recently). Who might acquire Iasta? Just about any larger software provider or solutions provider wanting to buy their way into the market. Acquisition odds (by end of 2010): 70%.

CVM Solutions - Of all of the smaller content providers in the corporate enrichment and supplier diversity marketplace, CVM Solutions is one of the only with enough revenue to get a larger organization excited about doing a deal. Toss in a new supplier information management platform, a Chairman who has become all but a legend in supplier diversity circles and a gigantic customer list (many of whom, to be fair, are only content customers) and CVM is becomes a strong acquisition target in the Spend Management market. Moreover, they're moving into the supply risk management market as well, an area which promises to continue to heat up in the remainder of 2009 and at least into 2010 (as supplier failures are often a trailing indicator of the economy).

Who might go after CVM Solutions? Just about any of the larger content providers looking to get into the supplier content or diversity marketplace would be a good fit, as would any software or solutions providers wanting a content footprint. What's an additional benefits of buying CVM -- the "installed content base" is a fascinating asset. I've discovered in recent years just how loyal supplier diversity folks are to their providers. They can provide an excellent foot in the door to up-sell broader solutions when a relationship exists. Acquisition odds (by end of 2010): 65%.

Aravo - In recent years, Aravo not only remade itself, emerging from the "best supporting actor" role in helping get eProcurement implementations up and running to a leading actor in the broader market. Along the way, they pioneered a new sector in which they're now facing competition from multiple players (but in which they have a solid head start). This market I speak of is called Supplier Information Management or SIM. Why is SIM rising in importance?

A couple of weeks back I wrote that "as companies seek to get more from their overall procurement and supply chain efforts, it's going to become increasingly clear that just as their organizations invested in platforms to support core transaction management, negotiation/contracting and inventory/planning processes, they're also going to need to do the same for managing multi-tiers of information and intelligence in their supply chain." In my view, SIM is precisely the prescription that companies need in this regard. And for some larger solutions provider, Aravo could very well be the pharmacy they take the script to in order to get filled.

Aravo would bring with a marquis list of customer wins in the SIM market (e.g., GE) not to mention one of the most configurable and flexible platforms for managing everything from basic supplier compliance details to supply risk management and corrective action procedures and programs. Who would be a good fit to acquire Aravo? Emptoris feels like a natural. As does, surprisingly, SAP (the Aravo platform feels and acts like a SIM version of Frictionless). I'm sure they're numerous others as well. Acquisition odds (by end of 2010): 60%.

Jason Busch

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