Xchanging Acquires Spikes Cavell – Further Thoughts and Competitive Issues

Last Friday, Xchanging announced the acquisition of Spikes Cavell Ltd. (SCAL), the UK-based spend analytics provider. It is not a big acquisition in the greater scheme of things – Xchanging’s share price barely moved in response to a deal that will see the firm paying around $11 million (£7.5 million) for SCAL. That was announced as being around four times revenues, so we can assume that SCAL had annual revenue of just £2 million.

As we said on Friday, the firm does punch above its weight, particularly in parts of the UK and the US public (government) sector. It is strong with many UK local authorities, as well as with the Scottish Government’s procurement community. In the US, the partnerships with NIGP (the National Institute for Government Procurement) has taken it into many local and state-level administrations.

We suspect it is that client list, as much as the technology, that attracted Xchanging. Indeed, SCAL has decent technology, but in a rapidly developing analytics world, they are probably not at the very latest bleeding edge of that industry. But whilst the spend analytics capability fills a gap in the Xchanging software portfolio, the client base opens up a lot more potential for cross selling in the public sector where Xchanging has very limited presence. And this all plays to Xchanging Procurement Services' CEO Chirag Shah (pictured here) and his strategy to move the firm away from being a pure-play outsourcing provider. He wants to offer a range of software, managed services and outsourcing services, all provided across a wide sectoral and geographic base.

OK, it is hard to see a (imaginary) Spikes client like “Barsetshire” Council suddenly outsourcing its entire procurement activities to Xchanging; but it is quite possible to imagine them using MM4 (the Xchanging sourcing software), or perhaps handing over certain complex spend categories to the firm on a managed services basis. So just as Xchanging leveraged MarketMaker4 (now MM4) products into new accounts after that acquisition, we could see more of this coming from this deal.

In terms of competition in the spend analytics market, particularly in the UK public sector, firms such as BravoSolution, SciQuest, Iasta, Wax Digital and Proactis, smaller UK players like Due North, and pure spend analytics players like Rosslyn, will no doubt watch this with interest. And, as the article on our US site said on Friday, “Xchanging’s emphasis on acquiring specialised technology assets within the procurement sector places it at an advantage relative to other BPO providers in accelerating the rate of customer acquisition, which can lead to the selling of broader outsourcing and managed services”.

So in the BPO and managed services world, Proxima, 4C Associates, Accenture / Procurian, Efficio, Optimum, and GEP (and probably others) will also be keeping an eye on where Xchanging is going with this strategy. In fact, despite SCAL being a small buy in itself, pretty much every provider in our procurement solutions world should be watching for Xchanging’s next move with interest!

 

(Disclosure; I know we have said this before, but I hold some Xchanging shares - bought at flotation - in my pension fund. In addition, Xchanging and Spikes Cavell have been clients of Spend Matters Europe in the past (not currently); and my business partner, Jason Busch, provided consulting services to Spikes Cavell through his US consulting firm Spend Matters Group, LLC).

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