First Take: IBM Acquires Emptoris

Earlier this morning, IBM announced they were acquiring Emptoris. Emptoris, for those who do not follow the provider closely, is one of the stronger vendors in the e-sourcing, spend analysis, contract management, supplier management and telecom expense management software markets. Yet in certain segments, they've recently slipped in terms of new acquisition rates (as well as the rate of product innovation) relative to largely lower-cost competitors. The main reason for this is that an increasing number of companies have turned more toward wanting quick configurations of sourcing and procurement-related applications relative to the more customized implementations that are a sweet spot for Emptoris.

Still, Emptoris has always topped our shortlist for organizations wanting to make a proper investment in many of the procurement software markets where they compete. With Emptoris, Spend Matters believes that IBM is gaining a tremendous amount of software expertise and capabilities in a fast-growing market sector that is more relevant than ever in a questionable global economy and one where procurement decisions are increasingly impacting the top line -- in bringing products to market more quickly, in enabling expansion into new geographies and in achieving desired social outcomes (e.g., local suppliers, diversity suppliers) -- as much as the bottom line.

Before providing additional analysis on the deal later today and over the coming week, we'll share some basic elements of the news as well as what immediate implications we see for customers and competitors. According to the announcement, IBM has signed "a definitive agreement to acquire Emptoris Inc., a leading provider of cloud and on-premise analytics software that brings more intelligence to procurement and supply chain operations with spend, supplier and contract management for Smarter Commerce." There are certain elements of this description we don't entirely agree with (e.g., the precise strength of Emptoris is that they are not a predominately cloud vendor, at least not when it comes to why many of their larger customers select their core applications). But we do believe their analytics and pure capabilities in sourcing, spend analysis, contract management and related areas are a good fit with both the procurement BPO and enterprise software groups at IBM.

IBM notes in their announcement that "Emptoris has over 725 employees around the world" and that "the acquisition is anticipated to close in the first quarter of 2012, subject to the satisfaction of customary closing conditions and applicable regulatory reviews." While IBM did not disclose financial terms of the deal, we suspect the valuation created a significant return for Marlin Equity (Emptoris' previous owner), who previously picked up the asset for a song during a period of greater uncertainty owning to patent liability from a suit by Ariba. Still, it is unlikely that the valuation was in-line with the higher "cloud" multiples owning to the mix of installed and hosted software that Emptoris provided.

For IBM, the deal represents "the latest addition to IBM's Smarter Commerce initiative, launched in March 2011, which is aimed at helping companies respond to shifting customer buying patterns. Emptoris brings to IBM Smarter Commerce a set of new, flexible and integrated solutions that orchestrate and manage the sourcing and procurement of goods and materials as part of supply chain management." IBM also notes, "Emptoris' spend management solutions complement the existing B2B integration and supply chain management capabilities IBM acquired through the purchase of Sterling Commerce in 2010." To qualify this statement, we would point out that Emptoris does not provide transactional P2P (purchase-to-pay) software, namely eProcurement and electronic invoicing capability, that are often classified under the spend management area. Rather, Emptoris focuses on analytics, data and process-driven activities (e.g., contracting, sourcing and supplier management) and the management of basic and complex services that organizations procure (e.g., temporary labor, telecom).

Looking at partnerships, Emptoris worked with numerous large BPOs and SIs before the deal, including IBM. However, our intelligence suggests that the working relationship with IBM was not among the more active of Emptoris partnerships. In fact, out intelligence suggests that other firms provided larger referral streams to Emptoris in the past 12 months. Given this, we believe that current Emptoris partners such as Accenture and Deloitte are going to search for alternative solutions given their competitive services practices with IBM. This should benefit providers like BravoSolution, Iasta, Zycus, SAP, Oracle, CombineNet, TradeExtensions, Upside and many others.

Moreover, in terms of competitive services and solutions, we suspect this announced transaction is likely to spur other BPOs and larger consultants to take a more aggressive acquisition stance within procurement. For competitive software providers, the deal might look today like an early stocking-stuffer, but it remains to be seen what IBM will do with the various Emptoris assets from an innovation perspective, so competitors should not unwrap the present just yet.

For Emptoris, the transaction should help accelerate their efforts around procurement-focused master data management (MDM) covering spend, suppliers, and related areas. We believe an MDM-based vision for procurement will be good for Emptoris and IBM, and presents a potential defensible position. This should provide further evidence to customers that Emptoris (and IBM) are building a strong portfolio of capabilities that "tackle the tough stuff" that neither the ERP providers nor Ariba fully address with their core offerings (although SAP and Oracle are rapidly developing highly competitive and often innovative products in certain areas such as supplier management). Spend Matters believes that the deal should also increase the velocity of key areas Emptoris has focused on in recent quarters based on feedback from customers and channels including front-line usability of its tools and cross-application reporting. In addition, the acquisition should help put a new layer of wallpaper on top of the diverse set of acquisitions Emptoris has made over the years, providing a common positioning and marketing face to the market.

Stay tuned for continuing coverage of this announcement, including a more detailed take on what it means for IBM, Emptoris customers and prospects, competitive software companies and competitive services providers, inclusive of the broader BPO and consulting ecosystem in the procurement sector.

Check out the latest Spend Matters coverage of Emptoris here:

Emptoris Empower 2011: Dispatch One – A "New" Emptoris
Emptoris Empower 2011, Dispatch Two: Does Conservative Positioning = Conservative Product Strategy?
Emptoris Empower 2011: Dispatch Three -- Ease of Use Takes Center Stage
Emptoris Empower 2011: Dispatch Four -- Streamlining the User Experience With Some Fresh Interfaces
Emptoris/Xcitec: Acquisition Competitive Implications (Supplier Information/Supply Base Management)
Emptoris/Xcitec: Acquisition Solution Implications (Supplier Information and Supply Base Management)
Emptoris to Acquire Xcitec, Expand Supplier Management Offering and Reach Into German Market
Understanding the Brightpoint and Emptoris Spat -- Lessons From the Spend Trenches (by Anonymous)
Brightpoint Files Suit Against Emptoris: When Spend Analysis Does Not Go As Planned
Emptoris, Telecom Spend Management, and the Need for Specialized Solutions with Rivermine (Part 1)
Emptoris, Telecom Spend Management, and the Need for Specialized Solutions with Rivermine (Part 2)
Rivermine and Emptoris -- Customer and Competitive Implications
Emptoris Acquires Rivermine -- Telecom Expense Management Meets Procurement

- Jason Busch

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