I'm often asked to provide my opinions to vendors and investors in the Spend Management sector about the role we can expect consolidation activity to play. Until the past few quarters, I was hesitant to say that there was real evidence of consistent M&A activity heating up. But recently (well before the Accenture/Ariba announcement) I've been bullish in calling for short- and medium-term consolidation. There are a number of reasons for this, but perhaps most important is that I'm seeing an interest in footprint expansion at the moment, both product-wise and geographically.
I expect the most consolidation to occur in areas like electronic invoice presentment payment (EIPP). Specifically, I believe we'll see continued consolidation (potentially geographically targeted) among network/connectivity providers as well as product expansion plays in supply chain finance, dynamic and competitive discounting and brokerage/origination of funding capital.
Outside of the EIPP area, I'm calling for a near-term plethora of deal activity if current transaction opportunities in the market close in the supplier information management and supplier enablement arenas (including content), starting with an announcement I'm expecting in the coming weeks. I also believe we'll see continued consolidation among more general P2P providers, within procurement BPO and solution delivery/professional services.
What's driving this activity? For one, large name providers are beginning to investigate non-organic growth options more seriously. I've been told by some close to the company that Ariba is relatively close to announcing at least one transaction, yet rumors are only rumors (I suspect there are certainly more in the pipeline, regardless). Moreover, services and outsourcing providers are also looking at acquisition options. And in certain cases, they're even considering the same list of vendors as software companies, competing for solution assets. In particular, we expect to see greater integration between BPO providers and integrated software assets.
Several other reasons are fueling deal activity and interest as well (e.g., private equity involvement and curiosity, debt offerings among larger software providers to fund acquisitions, etc.). But perhaps the biggest driver of M&A is that providers are beginning to listen more to customers and their need for better integration of solutions. Still, I'd argue that only a minority of transactions end up benefitting the customer in the end. From the sun-setting of products to higher maintenance/subscription prices to more expensive software modules to reduced support levels, the end result of software/solution M&A is that companies will often find ways to make the deals pay for shareholders before customers.