Private Equity Firms — Taking an Interest Not Just in Procurement, But Procurement Software

In recent years, I've been amazed at the level of uptake in private equity involvement with sourcing and procurement within their portfolio companies. In many cases, this has led PE firms to partner with consultants; and in select others, it's even led to the formation of internal shared-services resources that deliver cost savings across a firm portfolio. If you're curious to learn more about what private equity firms are doing in this area, you can check out past Spend Matters posts on the subject (here and here). But it appears PE firms aren't limiting their enthusiasm to lining their pockets by improving the valuation of their portfolio companies through better spending. They're also increasingly buying into this market from an investment perspective.

Madison Dearborn's recent buyout of Fieldglass is one of the most recent examples of PE's interest levels in the market. Ironically, PE buyouts can often lead to greater innovation and benefits to existing customers compared with some of the alternatives (i.e., an acquisition by a software company, such as Versata's buyout of PurchasingNet). Consider, for example, how Marlin helped put Emptoris back on track by bringing in new leadership and driving explosive software revenue growth compared with others in the sector since their investments (see a post about it here).

KKR is also getting in on the procurement software game. The recent buyout of Visma, a Nordic specialist, highlights this growing trend. Interestingly, Visma's investors opted to sell a majority stake to KKR rather than test the public markets. To wit, Visma "was in the process of preparing itself for an Initial Public Offering (IPO), but KKR stepped in with an offer sufficiently attractive that the IPO was pre-empted." From a functional application and solution perspective, Visma delivers a basic back-office application suite (general ledger) as well as modular add-ons including P2P (focusing on eProcurement).

Within the Spend Management world, who else might be on the PE shopping list? Stay tuned as we offer our thoughts throughout the coming months. But perhaps most important, customers should remember that if their vendor is acquired by a private equity firm, recent track records suggest that new investors will do right by the user community versus killing off innovation and offering declining service levels.

Jason Busch

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