Are you Ready? It's Time for M&A Activity to Heat Up This Fall (Part 5)

They're numerous reasons that I expect M&A activity to heat up in the vendor and solution provider community this Fall, even outside the fact that deals tend to beget more deals once the cycle begins. For one, investors will be eyeing ways to exit underperforming investments and cut their losses. Private equity firms -- and companies that act like firms -- (e.g., Marlin, GTCR, Consona) will be looking for buyout and roll-up opportunities. And public companies will be looking to sustain growth rates in an environment of higher volatility (e.g., consulting revenue) where accretive acquisitions make good shareholder sense. But what companies in the Spend Management circle will be doing the acquiring let alone which names can expect to be on the acquisition dinner plate?

Let's first look at some of those most likely to do the acquiring. Of all the vendors out there that I've not already discussed in this series, I suspect we'll see continued acquisitions from Marlin. Emptoris will be after solution-extension tuck-ins if Marlin's suggestions are to be believed. But I suspect, provided they push the acquisition direction, that they will be looking for cheap assets and maintenance revenue. I could see Emptoris scooping up both targeted solution extensions (e.g., a supplier information management or supply risk platform) or even going deeper in certain areas (e.g., optimization) if the right opportunities present themselves. I don't believe it makes any sense, however, for Emptoris to get into the transaction or P2P game, competing against SciQuest, one of its partners. Though I could see Emptoris picking up targeted services plays that don't present too much potential channel/consulting partner conflict.

I've already covered Ariba in the previous post on this subject, but it suffices to say that it actually makes more sense for Emptoris to get more acquisitive on the software front than its West coast sourcing and supply management competitor. However, I do see other P2P players continuing on the acquisition binge. BasWare has a long history of digesting companies and making them part of their own DNA. In fact, many of their core capabilities have come from acquisitions over the years. They're one of the quiet acquisition success stories that have been able to maintain a level of innovation in their core space (invoice automation) not just through organic development efforts, but also by "outsourcing" R&D in some capacity by acquiring niche leaders. This is a rare strategy when it comes to M&A, but it's worked for them.

What about the other big names in the space? Look for possible deals from the remaining large exchanges (e.g, Quadrem, Agentrics, etc.) with significant Spend Management capabilities as they look for new offerings to bring to their member and customer base. However, I suspect these deals will have to be accretive given how conservative these organizations tend to be.

On the content side of the house, I suspect we'll see targeted acquisition and investments from all of the major players -- D&B, Equifax, Austin Tetra and even LexisNexis. This is a market that is just waiting to be consolidated as customers look for a single source of content for their spend visibility, supply risk, supplier diversity, sustainability and global Spend Management initiatives. I suspect folks like AECSoft, CVM Solutions and Panjiva won't be independent for long, provided they have enough material revenue to get the larger players interested (the content business is so conservative the bigger guys won't just buy based on recent growth and solution strength).

Historically targeted players like Zycus could make acquisitions as well. But I suspect that much of their competitive advantage going forward will come from further integrating the capabilities of their existing applications to create entirely new offerings and value propositions. In addition, I don't see folks like Zycus doing financially driven deals to appease investors or Wall Street growth expectations -- only product, service or solution ones that make sense as logical extensions. And even though BravoSolution acquired VerticalNet, I don't see them being a major acquirer either, unless deals are a particular strategic -- not just financial -- fit.

One thing that is interesting to me is that very, very few of the providers mentioned in this series so far have strong corporate development folks with significant M&A experience under their belt from either a banking or industry perspective. In fact, I'm not sure if any do, at least by my measure. I say this as someone who can masquerade as a deal guy and has done deals in the past, but who really knows how to best leave M&A to the pros once the diligence and valuation start. So if you see a big name player hire a Corp Dev VP from a major bank or an Oracle, consider it a sign of acquisitions to come. Perhaps the only vendor mentioned who has this type of asset behind them is Emptoris, who can leverage the acquisition experience of Marlin (or IQNavigator, who could leverage their investor, GTRC).

This post has -- as I expected -- rambled on longer than I thought. So we'll just need to continue it when we talk about who is most likely to be acquired in the next 12 months. Stay tuned for this final analysis later this week.

Jason Busch

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