A New Journey For Scanmarket – What Lies Ahead

We wrote, when news broke at the end of last week, that leading Nordics-based strategic e-sourcing provider Scanmarket had announced the sale of 90% of its business to private equity firm Verdane. It was actually a 100% percent undertaking, but the founders, CCO Ole Nielsen and sibling and business partner CEO Betina Nygaard, reinvested 10% into the firm and in doing so retained their roles in the leadership and development of the company. Happy news indeed for customers, as this is a long-standing family-run enterprise, which, we are assured, will not lose the personal touch and attention that clients have become accustomed to.

So what were the business drivers behind this change? To answer that question we must first look back over the years since its founding in 1999. Ole Nielsen created Scanmarket as an open B2B marketplace, and back then, he candidly explains (with Google or other search engine to tell him otherwise) he firmly believed he was the first in the world to develop such an offering.

“And it was tougher in those days to gain traction in terms of exposure and sales, as one begat the other” he says. So between 9 and 12 months later, he began to realise what was actually needed was a closed platform, an e-sourcing tool that companies could use to manage all their buying activity.

Initially this was a basic sourcing offering, essentially a one-line reverse auction tool. “I wouldn’t even have called it a module at that stage,” he says. “It was just a ‘function.’” Even so, he went to market and Scanmarket’s first customer signed up straightaway. That made him think: had he hit on something very desirable? or had he pitched the price far too low? Again, it wasn’t as easy in the ‘90s to find out market pricing levels for a start-up, it was more trial and error. So in a virtual ‘door-to-door’ exercise, he evaluated what customers would be prepared to pay – until eventually he discovered the real market value.

Feedback was positive, all that lay ahead now was developing further functionality; the first came in the shape of multi-line reverse auctions, then the addition of time extensions for bids at the final two minutes, then RFx modules, then scoring and weighting, and Japanese and Dutch auction functionality to follow. Customers were delighted; the firm expanded across Europe, and the rest, as they say, is history.

Today, Scanmarket has more than 300 customers in more than 80 countries, working with vendors in more than 160 countries. It has grown its platform to support the entire end-to-end strategic sourcing process, but its legacy of user-friendliness remains at its core. It has six modules with five developed and maintained in-house: project management, supply base management, contract management, e-RFX and eAuction modules. The sixth is spend analysis, the first to be developed externally, with aid from partners Sievo and Rosslyn Analytics in terms of data cleansing.

So why did it become so successful? “Scanmarket has never professed to cover everything, unlike many e-procurement platforms,” he says. “Instead we remain fully focused on purely strategic sourcing, so we can do it really well.” What they ended up with was a robust and rather exceptional platform in that it has kept, through all these years, its distinction of being very easy to use yet effective. And it is this ease of use that enables higher throughput.

“For example, Nielsen explains, “in its first year, customer Nissan saw more than 300% growth in throughput – and they put that down to ease of use for the individual compared to what they had been used.”

So ease of use and greater throughput enablement are part of the success story, another part is their track record in customer retention. “We brought engineers on board to help us develop over the years, but the key was that they based that R&D on user feedback. Our consultants, while working with clients, garner regular feedback on what’s important to them: what they think the process should be, how it flows, functional additions they would like to see and so on. The consultants can’t make that happen, but they can explain them to the engineers, who can. And that keeps customers happy.”

It’s clear that in talking to Ole he is passionate about sourcing, and that passion is passed onto the team. That, we believe, is another driver of business success. “For us,” he says, “sourcing is not just about finding the right supplier, under the right conditions, with the right quality of product, at the right price, although that’s important. What sits at our core, is the optimisation of that process. The idea is to do all of that, but in an easier, more interactive way that is beneficial to both supplier and buyer, to deliver an all-round better experience.”

That takes us back to original question: why sell? “In April,” he explains, “Scanmarket turns 20 – making it the oldest system of its kind on the market – others have merged or been acquired, or haven’t made it through economic turmoil. We have stayed stable, we were seeing 40% year-on-year growth when others were diversifying or going under. We managed to maintain 15% to 20% growth (but always keeping an EBITDA margin of 30%) in the hardest times. So we’ve always stayed healthy, mainly because our strength is sourcing, and that’s where we will continue to put our focus – making us even stronger going forward. But as we grow, it becomes harder to maintain that level of good health and keep our position of uniqueness without extra investment and resource.”

Three years ago Scanmarket began to receive interest from the market, approaches that made it think about defining its value. But being acquired or merged into an eProcurement platform was not their vision, so decided a financial equity route was the best way forward. In finding a partner, a good cultural fit was more important to them than price.

“To be honest,” he says, “when we went to market, there were bigger numbers on the table. But we were more concerned with staying true to our mission of getting the right fit. That’s why we chose to partner with Verdane; they were like-minded in our business plan and direction of the company.”

Betina and Ole will continue to be involved in leading the company, so it will remain a family concern. “Why change a winning team,” he says.

And going forward? Existing clients have expressed a need for more functionality, and they aim to fulfil that. The next 6 to 12 months will see them focusing on enhancing contract management and supply base management, and investing in R&D. To do this, they have already taken on extra engineers and will be hiring more. A large portion of the firm’s revenue still comes from the UK, 25%, so they intend to expand deeper into Europe, especially Benelux and German-speaking countries, and across North America, and will hiring the right people to help them do that.

“Jason Busch once said that Scanmarket was ‘the market’s best kept procurement secret’ – well,” he says, “we don’t want to be a secret anymore, we want everyone to know about us, and we now have the financial strength to make this happen.”

We wish them well, and ‘Watch this space’ as they say!

(For a deeper analytical look at Scanmarket see Spend Matters Pro offering: Vendor Snapshot)

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