Oracle Acquires Textura — Tackling Payments and the Financial Supply Chain for Construction and More David Gustin, Jason Busch and Pierre Mitchell - April 28, 2016 3:36 PM | Categories: Receivables Finance, Technology & Platforms | Oracle announced Thursday it agreed to acquire Textura, a cloud-based solution for the construction industry with end-to-end capabilities spanning from initial bid estimation and sourcing through to subcontractor management, communication and collaboration, invoicing and payment. “Textura’s mission is to bring workflow automation and transparency to complex construction projects while improving their financial performance and minimizing risks,” Textura CEO David Habiger said in a statement. The $633 million transaction values Textura at roughly 8X trailing revenue and represents an over 30% premium to the previous day’s close, a stiff price for a product that will complement one of Oracle's existing solution lines. While Oracle Primavera offers a complete suite of cloud solutions for project, cost, time and risk management, Trade Financing Matters’ quick analysis of the combination suggests it will surely add to Oracle’s arsenal with deeper industry and multi-tier E&C capability (a significant differentiator for Textura). Moreover, it will also complement other Oracle solutions, such as Project Procurement. In layman's payables terms, the Textura payment mechanism is essentially like a pull-system version of an evaluated receipts settlement approach. Participants in the supply chain are paid when suppliers at other tiers are paid. Who knew construction was more aggressive in its multi-tier working capital management (e.g., VMI + JIT Hubs in the high tech industry) than high tech! However even with Textura, engineering and construction (E&C) functional gaps will still remain for Oracle in the E&C project lifecycle, including providing the level of subcontractor on-boarding and compliance management capability that software and managed services providers, such as Avetta, formerly PICS Auditing, offer today. Payments and the E&C Financial Supply Chain One area that piques our interest about the transaction that financial services company Greensill Capital helped develop Textura’s Early Payment Program through a partnership. Payment is one of the biggest problems in the $2 trillion construction industry today. There are many unique challenges involved with providing financing for construction receivables, not limited to: Contract terms — Construction contracts often include terms such as “paid when paid” and “paid if paid.” In trying to find skilled lower-tier subcontractors (including members of the trade), primes and larger subs generally face a skill shortage globally. Many contractors do not pay until paid and then sit on the cash. In construction, the subcontractor has already ordered the materials and provided labor for weeks or months, yet the billing cycle starts at the end of the month. Progress payments — For larger and longer jobs, most contractors are required to bill as they progress throughout the project and reach certain milestones. Retainage — Most general contractors will withhold 5%–10% from each billing until the entire project has been completed. Having software that can both manage the end-to-end project lifecycle for all participants in the E&C supply chain while facilitating a more rapid flow of capital to subcontractors is extremely valuable, including from a supply chain risk management perspective. Moreover, the weighted average cost of capital (WACC) arbitrage opportunity between tiers in the E&C market is significant indeed. As background on its solution, Textura rolled out an initiative back in April 2015 with Turner Construction as its launch partner client. The program is now available broadly to general contractors. Oracle: Playing Catch-Up to SAP/Ariba in Trade Financing More broadly from an Oracle perspective, there is significant opportunity to embed trade financing capability (e.g., invoice discounting, SCF/reverse factoring, inventory financing, etc.) throughout its suite of procurement and supply chain products. This is a market in which SAP/Ariba are making serious investments in new capabilities and partnerships, and the Textura acquisition could be a means not only to dominate a specific vertical but also play catch up to its arch-enterprise-applications-rival. Finally, the acquisition begs the question: Will Textura sit “standalone” in the E&C industry or will some of it cross over to other verticals as part of a broader Oracle business network play, again potentially providing an alternative to SAP/Ariba? Trade Financing Matters and Spend Matters will continue to provide additional reporting, analysis and commentary on the transaction as more information becomes available. Related Articles Discuss this: Cancel reply Your email address will not be published. Required fields are marked *Comment Name * Email * Website Notify me of new posts by email.