Proactis Acquires Intesource at a Cheap Valuation
Earlier today, Proactis, a small UK-based procurement suite provider, announced it was acquiring retail/grocery sourcing specialist Intesource. Ironically, Spend Matters believes Intesource has a far more differentiated – relatively speaking – set of offerings than Proactis. Given Intesource’s focus on strategic sourcing, supplier management, and related activities and Proactis's focus on purchase-to-pay solutions, it is a complementary acquisition. Yet the low valuation would suggest Proactis is buying Intesource as a services company, not as a software provider.
Here are the headlines from the press release:
- Proactis is paying “3.9 million, payable in cash on completion ("the Acquisition"). The net cash consideration is expected to be approximately $2.9 million as Intesource is expected to have approximately $1.0 million of cash at completion.”
- Intesource has “over 25 new clients and significant scope for cross-selling opportunities.”
- “Clients follow a subscription based business model with, typically, 2 to 4 year term contracts.”
- “Annual recurring revenue to be acquired as part of the Acquisition is anticipated to be in excess of $4.5 million.”
Spend Matters has spoken to a number of Intesource customers in recent months and found that the provider is typically deeply embedded as a managed services provider inside their customers. Their specialty is in what is best described as “multiple location” sourcing, spend, and supplier management, especially in the food, retail, and casual dining areas (i.e., companies that have numerous retail or other locations).
Intesource is one of the only providers we’ve ever encountered that offers an unmetered full-service sourcing solution going beyond just e-sourcing software to include services centered on category discover, roll-out plans, specification development, SKU rationalization, supplier research, supplier qualification, event structure, and supplier development. They’ve also expanded into additional areas, including contract management, fuel programs, vendor risk management, and price-list replenishment.
Our initial analysis says Proactis is getting a bargain. Intesource’s customers seem like a very satisfied lot and the full service model appears sticky given the package of software, domain expertise, and related services they bring.
As my colleague Peter Smith writes, “So for all the hype around firms selling for 5 or even 10 times revenue, Proactis have picked up what looks like a solid business for less than one times revenue. They're paying $3.9 million, but there is a $1 in the Intesource balance sheet, so it is really only $2.9M. So that represents about 0.6 times revenue or a P/E ratio of just 5 times pre tax profit.”
Stay tuned for further coverage of the acquisition in the coming days.