CombineNet and SciQuest – some further thoughts

Let’s go back to the acquisition of CombineNet by SciQuest. As we said on Wednesday, this is the latest in a series of niche acquisitions by SciQuest, making them one of the most interesting players in the procurement software market, with a portfolio including spend analytics, contract management, P2P, supplier information management and now complex sourcing.

CombineNet are one of the leaders in what we call market informed sourcing – or optimisation, the real top-end of the sourcing technology market.  Trade Extensions would certainly dispute the claim that CombineNet are the pure-play market leaders, but it is a fairly limited market (BravoSolution, Emptoris and Iasta all have capability within their broader suites). The CombineNet product will be integrated into the current cloud based (SaaS) SciQuest products and renamed the “SciQuest Advanced Sourcing Optimizer”.

SciQuest have made a big thing about how this acquisition gives them an entry into CombineNet’s large customers – true enough, because generally it is larger firms who have the complex sourcing tasks that benefit from this technology. But equally, larger firms are pretty savvy about procurement software, so they are unlikely to suddenly buy everything else in the SciQuest portfolio just because they use CombineNet – so I wouldn’t overplay the synergy there.

However, there’s no doubt this market is growing very healthily, and we featured excellent results from both CombineNet and Trade Extensions recently. So SciQuest are buying into a strong and growing sector, which suggests that 3.5 times revenue as a purchase price isn’t too unreasonable.  It was also interesting to see that CombineNet have 80 staff to generate revenues of $12million. That suggests an opportunity to increase productivity, as that sounds on the low side for a specialist software firm I suspect.

And talking of Trade Extensions... the happiest man in the world in terms of this deal is probably Garry Mansell, CEO of that firm. Any acquisition situation causes some dislocation and disruption in the acquired business, so whilst he may face a stronger competitor longer term, in the short tem, Trade Extensions will see opportunity to exploit any uncertainty in CombineNet and their customers.  And as the last remaining specialist player in this field, the valuation of Trade Extensions has probably jumped 25% now purely down to scarcity value.  Will they be the next to be acquired?

And finally, might this see SciQuest taking a more dynamic approach in Europe? They have some very limited activity this side of the Atlantic, even less than CombineNet who themselves aren’t huge here, but at least have a small London office. Looking at the interesting portfolio of offerings the firm now have, expansion beyond the US would seem to be an obvious priority and opportunity.

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