ICG Commerce's 2009 Results Suggest Procurement BPO Growth

ICG Commerce, which sell-side analysts at Crag Hallum (an investment bank) suggest is a prime IPO candidate in the coming years, had a strong 2009, according to a recent company press release, adding further fuel to the public offering fire. In their latest announcement from last week, ICG Commerce suggests that "despite the economic challenges" of the past year, the BPO provider "grew revenues by 28 percent in 2009 and increased its spend under management by 33 percent to $13.6 billion." Management suggests that "this growth reflects ICG Commerce's specialized focus on procurement outsourcing and the increasing recognition among companies that procurement outsourcing is the next generation strategy for improving financial performance by delivering hundreds of millions in savings across indirect and non-core spend areas."

For a BPO provider like ICG Commerce, which focuses on outsourcing large areas of indirect (as well as some limited direct and services spend), growing at a 28% clip does not require adding dozens of customers. It just requires adding the right ones, with enough spend and confidence in an outsourcing partner to trust them with their spend. This is, in fact, one of the major challenges in the procurement BPO market. A surprising percentage of deals end without a provider being chosen -- and the status spend quo continues. I spent some time visiting ICG Commerce recently and found their expert and process-driven approach to procurement BPO a refreshing change to those models focusing largely on the economic benefits of offshore resources. Clearly, this is an organization that understands all of the areas of the source-to-pay process, as well as which levers to pull to implement and sustain savings (e.g., not just focusing on renegotiating contracts, but also on contracting, vendor management, supplier performance management, invoice auditing, etc.).

Craig Hallum, who would clearly like to get in on an IPO and has had the best coverage of ICGC so far, is unabashed in their praise of the company in a recent brief: "ICG Commerce (ICGC) had another tremendous quarter, posting 30% y/y growth and 22% EBITDA margins during the quarter and ending the year with ~$326 million in backlog. By offering a clear path to cost savings on procurement on an outsourced basis, ICGC has tapped into a tremendous market with a differentiated offering." Craig Hallum and other analysts are forecasting that ICG Commerce will end 2010 with over $100 million in revenue -- which would put them squarely in the top four or five procurement BPOs (it's a tough exact calculation because of the breakdown of multi-tower deals with some of the larger providers). Craig Hallum further suggests that ICGC "signed 5 new contracts valued at $42 million including Clorox, Pinnacle Foods ($1.6 billion annual revs, 20 categories of spend)," among other deals in 2009. They also expanded relationships "with 4 clients," including one where they increased "spend under management by 400%."

Clearly, in the world of better known multi-tower BPOs, ICG Commerce is carving out a solid niche for itself. Stay tuned for further coverage of ICGC on Spend Matters as we continue to expand our investigation of procurement BPO firms in 2010. I look forward to continuing to double-click on ICGC, CGE&Y, Infosys, Genpact and Accenture (not to mention IBM, which we profiled last year in a four-part series).

Jason Busch

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