Last week, Basware announced it had acquired First Businesspost, GmbH (1stbp) , a German e-invoicing supplier network operator and software provider. Peter Smith initially covered the news over on Spend Matters UK/Europe, including calling out some of the highlights of the deal including that 1stbp appears "particularly strong in the automotive sector with customers including Audi, BMW, Daimler, MAN and Volkswagen." And "they've also got a decent customer base in retail," Peter suggests. Yesterday, Spend Matters had the chance to briefly catch up with the Basware team to learn more about the transaction, and we'll be sharing our learning in today's post and a subsequent series follow-up/deeper dive next week. Today, we'll start with some of the basics.
1stbp's 2011 revenue was right around EUR 2.4 million and the company showed EBITDA of EUR 0.5 million. Peter notes that "Basware have paid EUR12.2M including taking on some debt -- so that's some five times revenue they've paid, which is a pretty full price by industry standards." Let's hold that valuation thought for a moment -- actually a few days -- as we'll come back and explore it in the next post in this series. I agree with Peter that it's a relatively rich valuation on a revenue multiple basis, although the forward-looking PE is actually somewhat conservative by high-growth tech standards. But there's much more to it than that (we'll dig into this next week).
From a pricing model standpoint, 1stbp made money through its network by serving as an intermediary between buyers and suppliers for electronic invoices. 1stbp's pricing model would look familiar to most anyone in the e-invoicing market. It includes transactional pricing elements, monthly fees and implementation/consulting revenue. One of the fee transactional fee nuances relative to Basware, however, is that 1stbp sold prepaid packages based on invoice volume rather than simply charging per invoice. It's important to remember that both organizations, unlike Ariba, charge based on the transaction itself (or aggregate number of transactions) rather than transaction volume. Basware shared with Spend Matters that the cost per transaction for 1stbp starts at around 1 euro per invoice (usually supplier-paid unless buyers assume the cost) and can decline considerably based on committed transaction volume.
At the time of acquisition, 1stbp had 39 employees (28 in Germany (Munich) and 11 R&D team members in Romania). 7,000 suppliers are active participants in the 1stbp e-invoicing network and 150 buying companies (receiving clients, as Basware describes them) are members. While 1stbp is relatively small, their volume represents the largest source of business-to-business e-invoicing transactions Germany, according to Basware. But the stakes suggest there is more to this transaction than simply consolidating volume in a growing e-invoicing market.
As Peter suggests, we're now "into a game of consolidation and land-grab in the supplier networks/e-invoicing market, and anyone with strength in a particular geography or market, even if they're fairly small in total size, is likely to be under scrutiny from the major players like Basware, Ariba and GXS -- not to mention SAP and Oracle. Indeed, this move appears to parallel Ariba's acquisition of b-process in France not long ago...And the price will look reasonable if Basware can achieve product extension driven growth amongst the current FB client base, and enhance their current offering through the FB technology -- their supplier on-boarding solution is apparently particularly strong."
To add to Peter's analysis, here are a few quick related points:
- The valuation suggests the deal was strategic to Basware from a technology acquisition perspective (it was not even close to being accretive, at least on a trailing basis, from either a revenue or earnings persepective for Basware)
- Like Transcepta in the US, our quick take (and the valuation) together suggest 1stbp really has something quite unique in its approach for connecting smaller suppliers (although each of these two providers referenced do it very differently, a point we'll be sure to explore in detail on these virtual pages in the coming weeks)
- With the virtual printer technology that it acquired -- which appears quite different in application and technology from other approaches from competing providers using the same description/label -- Basware will gain a competitive upper hand in certain deals, likely against SAP and Ariba, with its story (and actual capability) around speeding up the on-boarding of smaller suppliers, reducing the time from a day (or more) on average to under an hour, and often 30 minutes or less
- Germany represents a high-growth market and the real competitor in Germany for Basware is not Ariba, but SAP; Basware knew it would have to move quickly to gain a foothold before SAP accelerated its e-invoicing penetration in the region, and this acquisition was no doubt a strategic land-grab for some high value e-invoicing real estate, in addition to the other elements of the deal rationale
- Basware will accelerate 1stbp's ability to serve its Germany customers on a global basis, many of which wanted to go global with their e-invoicing roll-outs
- Along with the multiple Ariba paid for b-process, we expect the high valuation ascribed to this deal to put at least moderate upward price pressure on future network consolidation deals (whether or not individual network operators/providers bring novel technology/capabilities to acquirers)
Stay tuned as we pursue a deeper dive next week on what this transaction will mean for Basware, its customers and its competitors on a global basis.