A Look Under the Sourcing Covers: Accenture Picks Up Ariba's Sourcing Services Assets (Part 1)

Earlier today, Accenture announced that it was taking ownership of Ariba's sourcing services business (you can read our initial take on the deal here). As one sell-side analyst noted succinctly (and appropriately) in quick e-mail to me this morning, the legacy "FreeMarkets asset has found a new home." I had previously worked at FreeMarkets for five years between 1999 and 2004 and during this time -- and following the Ariba acquisition -- the firm's underlying structure changed dramatically as it transitioned from a project delivery structure that mirrored those of many other services firms to a new type of sourcing services delivery "factory," with each stage of the strategic sourcing process sub-divided between different resources to maximize Ariba's margin while delivering the best and most consistent result to the client.

Even though Ariba did a less-than-stellar job in making the most of the asset in the end from a commercial perspective -- hence, the ultimate deal with Accenture -- the underlying group remained capable of delivering, in my view, one of the best sourcing services products in the market. But what does this deal mean for Accenture, Ariba and current and potential customers? Here's our quick take in a multi-part series exploring the topic, followed by a more detailed research brief (for free download) later this week. We'll start first by looking at the implications of the transaction from the Accenture perspective.

Accenture Procurement BPO Implications

  • Accenture has essentially acquired an asset at 10% of the value that Ariba paid for it six years ago
  • With the acquisition of Ariba's sourcing services group, Accenture gains a unique services asset whose only real process equivalent (but not necessarily equal) in the market is ICG Commerce. In our view, this will certainly enable Accenture to become more competitive in BPO deals (where they have not been seen as much recently as competitors including IBM, ICG Commerce, Infosys and others)
  • Our quick analysis suggests that Accenture bought the asset at a very attractive valuation (in the neighborhood of 1X revenue -- or possibly even less) so the deal appears to have been quite financially astute
  • Ariba's sourcing services group previously had strong direct materials experience, but in recent years, has focused more on indirect and services categories. This should complement the general need in the procurement BPO market for what some describe as "non-core category expertise"
  • The deal should give Accenture additional global capabilities based on the locations of Ariba's Spend Management Services (SMS) team (e.g., India, Prague) in terms of sourcing services (as well as a very cosmopolitan, global Pittsburgh sourcing hub). Yinz better believe it!
  • Accenture gains existing Ariba services contracts (and relationships), although the ability to transfer the contracts will depend on their assignability
  • Accenture has purchased significant IP based on how to deliver sourcing services consistently and effectively on a global basis
  • Accenture is gaining a small group (<25) of category-focused experts. However, the team behind these experts from a services delivery perspective brings process consistency and top-notch supplier management skills. Some close to the Ariba organization (past employees, current employees, customers) consider this group to be the company's strongest services assets (relative to the Arthur Andersen marketplace team that came over around the same time as the FreeMarkets acquisition)
  • Accenture will gain the marketing leverage of the insights that Ariba deployed in Supply Watch and related publications for its own marketing and demand creation initiatives
  • Accenture gains another option, in addition to Emptoris, in the sourcing/procurement technology partnership arena; incidentally, when Bob Calderoni was asked by an employee at an Ariba company meeting this morning about what the partnership meant for Emptoris, an Accenture partner, he suggested: "I like our chances"

Stay tuned as we look at the implications of the transaction from both an Ariba and customer/market perspectives. Also check out Phil Fersht's post on the subject as well.

Jason Busch

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