Accenture Acquires Procurian for $375M in Cash
Accenture just announced that it is acquiring Procurian, the leading best-of-breed Procurement BPO in the market, for $375 million in cash. Procurian, previously ICG Commerce, was a cash cow sitting in its parent company ICG’s portfolio, but not core to ICG’s cloud computing business. As ICG CEO Walter Buckley said in the press release: “We are now excited to unlock that value with this transaction and to execute against our growth strategy as a pure-play cloud computing company.” It now has $375 million to pursue that goal.
But, what are the implications for the procurement market? There are many!
Perhaps most important, Accenture strengthens its lead in the sector from a market share perspective – and a mind share one as well. It obviously thinks that the procurement market is core to future growth as evidenced by the premium paid for Procurian compared to the $51M acquisition of Ariba (see: Ariba Sells Sourcing Services, BPO Businesses to Accenture and The FreeMarkets Legacy: Accenture’s Gain, Ariba’s Loss). And we don’t blame them. It will certainly create the juggernaut in Procurement BPO in terms of category expertise with, by our own analysis, over 1,000 category-centric FTEs and subject matter experts. The combination will also obviously help them effectively cross-sell Procurian capabilities into their multi-tower offering.
In addition, there will be competitive ramifications here in terms of basically severing any ties that Procurian had with Capgemini and Genpact, who will now be scrambling to augment their native capabilities with deeper category expertise. It is also likely to set off further consolidation activity in the procurement services marketplace, as the difference between the “first tier BPO” and the smaller second tier players increases considerably (with the exception of IBM, which remains odd outsourcer out, for a variety of reasons which we’ll explore later).
There are numerous other implications as well:
- The transaction sets the bar for valuation in the procurement BPO market at roughly 3X +/- revenue for a largely services-driven organization with supporting infrastructure assets (technology, deep IP, etc.)
- For better or worse, the transaction brings an integrated capability to Accenture. We’ve written about the procurement services convergence for some time (as one example, see: Procurement Services Market Landscape: The Continuum of Procurement Services). This convergence is happening fast, as evidenced by Xchanging’s acquisition of MarketMaker4, and it will bring a strong native technology capability to Accenture, although not “functional” tools like e-sourcing. Moreover, the Procurian infrastructure is tightly integrated in terms of its technology and knowledge-based IP, so there will need to be some de-construction and re-construction to integrate the assets into both the legacy Accenture BPO capabilities and the acquired Ariba ones. However, if they can pull it off, the combined entity will have a strong story for the customer environments that it powers with its own suite of integrated solutions. This is in addition to those that it can sit on (e.g., BravoSolution, Emptoris/IBM, Ariba/SAP, Oracle, etc.), layering its deep knowledge and category centric IP atop other environments.
- Similarly, Procurian customers will now have exposure to Accenture’s broader capabilities, whether they like it or not. We suspect that the synergies in this regard could be material, especially in cases where Procurian is working at the highest levels of customer organizations (e.g., opening up the opportunity for logical procurement outsourcing extensions, such as A/P outsourcing opportunities).
- As a result of the transaction, Procurian will potentially be able to unlock a greater spectrum of value on the procurement services continuum than they’ve previously succeeded in doing. They are a solution provider that has been on the fence when it comes to delivering modular managed services. Accenture, on an overall BPO basis, has demonstrated a larger sets of assets on the managed services continuum, but it is unclear how “low they will go” with the unbundling of capabilities such as saleable market intelligence. We suspect that if the Accenture procurement BPO mindset wins out – which could be described as “large relationships über alles”– we will not see any stand-alone offerings in this regard. This would be a shame, given the truly massive IP of both organizations in category knowledge and market insights.
- The overall sector importance of the deal can’t be overstated: it will be the “SAP/Ariba” shot-heard-round-the-procurement-services world. But from a competitive perspective landscape and M&A perspective, it is even more important than the combination of the two software giants. Among rival firms, there is no question that GEP in particular will be sitting pretty, given its spectrum of solutions and capability – which will now make it highly attractive to other BPOs looking to become a strong number two alternative to Accenture/ Procurian. It no doubt makes Xchanging and Proxima more attractive candidates as well.
Stay tuned as our deeper coverage of this game-changing acquisition continues on Spend Matters PRO later today.
In the meantime, Spend Matters would like to congratulate Accenture on a hand well played in acquiring Procurian. We view Procurian as a class act when it comes to its people and commitment to customers – not to mention its rich expertise and wealth of applied procurement knowledge and IP across many spend categories. Moreover, Accenture has played a smart game of chess in the procurement services market as the deal could potentially harm competitors as much as it helps them.
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