Madison Dearborn has bought itself what many (including me, as an industry observer) consider one of the top two VMS platforms in the market. With Fieldglass, they've purchased more than technology and a high-margin, high-growth business -- they've also acquired a highly skilled and close-knit team that I'm guessing, knowing some of the personalities involved, are in it for the long haul (when GTCR acquired IQNavigator, there was material management turnover). Yet the multiple of the deal, despite the strength of the asset involved, suggests that both Fieldglass and the broader VMS sector are outliers from the general procurement and SaaS software market from an adoption, growth and go-to-market perspective. There is no way (given the common valuation multiples of providers in this sector, not to mention common SaaS multiples in general) that this could be a common tech play in terms of underlying financial modeling and customer growth assumptions.
But rather than attempt to hit on every relevant point, I'll offer a number of loosely coupled observations below. I think this commentary will help those who don't follow this space every day to understand some of the key drivers in this market (including customers who are looking to get more from their VMS and services procurement solutions).
Let's first start with a few observations and backdrop:
- VMS providers typically -- but not always -- price on a percentage of volume basis (and this fee is paid by the supplier, except in certain SOW and other complex services cases); in theory, this should lead to faster uptick and adoption (but as you'll read in the next bullet point, this is not always the case).
- In nearly all situations even where an organization has a strong VMS platform in place, there is often minimal (<25%) spend penetration in potential categories across the enterprise. The captive "up-sell" capability internally represents significant opportunity (clearly Madison Dearborn saw this).
- Aside from IQNavigator, which appears headed more down a software path at the moment, managed services providers (MSPs) have continually proven their inability to maintain innovation within their solution set once they acquire a VMS. The path Fieldglass took in the post-Chimes world of truly embracing the MSP ecosystem (while maintaining an ability to sell direct) is attractive from both a current go-to-market perspective as well as a longer-term growth point of view. Independence is an asset in this case.
- Fieldglass was widely considered by both vendors and a number of potential financial acquirers to be the last remaining independent gem within the VMS / services procurement industry with traditional venture backing.
There are also some risks involved in the deal as well:
- As it continues to enhance its overall user interface and experience, IQNavigator could pull ahead of Fieldglass from a functional leadership perspective while improving usability for typical users (which some have knocked it for in the past, and is one of the reasons Fieldglass has bested them in certain competitive situations).
- The valuation of the deal by current SaaS multiple standards appears high. Given this, there is certainly investment risk, even if the business risk (i.e., customer defections) is nil to minimal.
- Fieldglass must decide whether or not it wants to revisit its past vision, embracing a broader talent management perspective that somewhat sidetracked the organization away from a sharp focus on services procurement, or to stay focused on a single area.
- Pricing approaches could eventually shift to more common enterprise (buyer-pays) models, potentially changing the overall valuation equation, and even how customers adopt VMS and services procurement platforms.
If you're interested in further reading on the subject, please check out some our past posts on Fieldglass (See them here and here) as well as our free VMS/Services Procurement Compass series research: