ICG Commerce – part 2 in Spend Matters US “investment” series

We featured Jason's new series here where he is looking at interesting companies in our field from a investment point of view – his first covered SciQuest.

His number 2 is ICG Commerce, who fit nicely with our current series on procurement outsourcing, as that is their core business. Their parent company, which would be the investment play, is Internet Capital Group (NASDAQ: ICGE), which, as of last summer, held 81% of ICG Commerce's outstanding stock.

ICG Commerce approach procurement outsourcing though providing expertise and capability to clients rather than just labour cost advantage or offshoring. In that sense, they resemble buyingTeam with their “customer intimacy” approach.  From an investment point of view, as Jason says,

investors can (and should) look at the parent company as the closest way to play the procurement BPO market today, as the ICGE recommendation is as much a bet on the macro procurement climate as it is an individual company recommendation. Unlike other firms, where procurement BPO is a drop in the overall outsourcing bucket (e.g., IBM, Accenture, Infosys, Genpact, Wipro), for ICG Commerce, focusing on spend management results is the organization's singular goal”.

Even in the case of Xchanging, who have a stronger procurement focus than most of the generalist outsourced service providers, it is still only perhaps 20% of their business – for ICG it is 100%.

ICG Commerce reported sales of $29 million in the first quarter of 2011, up 27% year on year, and “EBITDA Increased to $5.2 million”. As Jason says, “it's quite clear that the company is growing and on solid financial footing”.

In assessing the prospects for ICG, Jason highlights that the outsourcing market is looking quite buoyant – we’ve highlighted a range of interesting deals this year – and that smaller assignments may well lead to bigger things. However, despite some recent rumours in the market about expansion in this direction,  ICG Commerce doesn’t have a strong presence in Europe as yet, so any investment would be very much relying on US performance.

He makes an interesting comment on the potential downside -

 One of the biggest market dangers to ICG Commerce (and ICGE), from an investment standpoint, is the potential for high profile, big-scale blunders among larger firms in the procurement BPO market. Spend Matters is currently tracking one such BPO engagement not going as planned (the engagement does not involve ICG Commerce). If it goes public, it's likely to prove embarrassing not just for the provider in question, but could potentially taint the broader procurement BPO market by means of association. Perhaps this is one reason ICG Commerce is careful to describe what they do as "procurement solutions" rather than BPO.

I’m fascinated to find out more on this one!

Anyway, ICG Commerce are an interesting player in the US procurement outsourcing market, and one way to make an investment in that market – not that we’re personally recommending any investments of course!

Stay tuned for highlights from Jason’s third post shortly.

Disclosures (from SpendMatters US): ICG Commerce is a Spend Matters US  sponsor. Over fifty other providers have engaged Spend Matters US and our affiliates in recent years, including a range of direct ICG Commerce BPO and management consulting competitors/substitutes. See our "Disclosures" section for a partial list. Jason Busch, the author of this post, is not an investor in Internet Capital Group, Ariba, SciQuest or any other solution vendors in the procurement marketplace because of his role covering the solutions market. (The same applies to Peter Smith).

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