Coupa Acquires Trade Extensions, Leading Sourcing Optimisation Software Provider

Spend management software firm Coupa has announced (in a formal filing document at least) the acquisition of Trade Extensions, the Swedish / UK market leaders in advanced sourcing (optimisation, market informed sourcing) software. We’ve worked with both firms in the past and know them well, but will try to be objective in our analysis!

Trade Extensions was founded in 2000 by academic Swedish mathematicians, leaders in the field of advanced optimisation algorithms and in 2001 “conducted the world’s first online combinatorial auction with direct feedback to bidders”. Moving on, in 2007 a group of around 8 executives from Mars (the firm not the planet) who had used the software in Mars for logistics tenders joined the firm, three of whom still sit on the Trade Extensions management team, including CEO Garry Mansell.  Since then, growth has been steady and impressive – around 20-30% per year – and unlike so many small software firms, the business has been profitable.

The software handles the most complex sourcing tasks – and indeed goes beyond sourcing into complex supply chain and network optimisation tasks, getting into production, stockholding, even investment decisions as well as the usual supplier selection tasks. It is powerful stuff and we have been advocates for this approach since we first saw what it could do some ten years ago. (See here and here if you want more information). Trade Extensions has continued to enhance the product, and their latest developments look very exciting.

Coupa floated last autumn and has already bought UK firm Spend360 since then to provide leading spend analytics capability. Sourcing has not been the strongest element of the Coupa platform, but with this purchase they have bought what is probably the most impressive technology on the planet in this field.

The other factor to note is the Trade Extensions customer list, which is impressive way beyond what you might expect from a $10M firm (Trade Extensions don’t publish revenue figures, but we believe this year their sales will be something close to that level).

Because the product appeals most to customers who have very complex sourcing tasks, by definition it is the largest and most complex firms who buy it, plus the top consulting firms who work with those clients.  So, as we have said before, “Trade Extensions has a client list that probably includes more of the world’s top 50 firms than any other procurement software vendor”. That has obvious attractions for Coupa, we suspect!

The price at $45M, 90% of it in cash, looks in line with similar deals  – some 5 times revenue perhaps – but remember the growth rate, the fact that Trade Extensions is profitable and that customer base. Our personal view is that while it is not exactly a bargain, it is a very good deal for Coupa and has great strategic importance.

Why is Trade Extensions selling? Well, the founders aren’t getting any younger, and there are other private shareholders who may well be delighted to crystalise the growth in their investment. But we suspect part of it is a desire from the Trade Extensions team to get the “turbo-charge” that is available from being part of a larger entity.

They are rightly proud of their firm and the product, and while this is the end of Trade Extensions as a stand-alone business, their technology is likely to play a very important role within the bigger Coupa future. Arne Andersson, President and Founder (one of the cleverest people I have ever met) and the other developers in Sweden will feel positive about that I’m sure. And we understand Garry Mansell and Joe Critchley (VP sales and from the ex-Mars side of the firm) are staying on for some time to come at least. Knowing them personally, they should fit the Coupa culture and style well, so hopefully this will be a happy marriage!

We will of course have more on the deal in coming days. And there is more (brilliant as usual) analysis here from our colleagues at Spend Matters US.

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