Xchanging and MarketMaker4: Acquisition Coverage and Initial Analysis

Earlier today, Xchanging announced its acquisition of MarketMaker4, a provider of strategic sourcing tools and embedded market intelligence, in a transaction that will bring together a global business process outsourcing (BPO) and services firm with a next generation sourcing solutions provider. Here are some of the details of the transaction:

“Xchanging plc, the business process, procurement and technology services provider, today announces that its subsidiary, Xchanging Inc. has acquired MarketMaker4 (MM4), an e-Sourcing technology company based in the USA, for a potential total consideration of up to $22 million, subject to certain performance criteria ... MM4 brings to Xchanging's Procurement business a … platform providing industry-agnostic procurement e-Sourcing, business intelligence and dedicated customer support … The acquisition expands the breadth of procurement services Xchanging offers, as well as contributing to the company's technology-enablement strategy.”

“MM4 will continue to be marketed under the same name in order to leverage its well-established position in the e-Sourcing market. This will support Xchanging's strategic global growth strategy by extending its presence in the USA. MM4 has an existing customer base of over 35 companies and growing, with clients in countries including the USA, Canada, Mexico, China and the UK. Customers are spread across a wide range of industries, with a particular focus on the manufacturing and retail sectors.”

Spend Matters will provide detailed coverage and analysis of this transaction to our Plus/PRO subscribers in the hours and days to come. But in short, Xchanging, a lesser-known name in the US business process outsourcing (BPO) market, has been steadily expanding its customer reach and influence in the UK and on the Continent – and very recently, in the US as well. It now counts four US customers. In comparison, MarketMaker4 told Spend Matters that they currently have between 35-40 customers. The transaction will no doubt accelerate Xchanging’s push into North America. The valuation, which Spend Matters believes is solidly in software as a service (SaaS) top-line multiple territory, if one factors into account the earn-out provisions noted in the announcement, should continue to build investor enthusiasm for the sector.

But when it comes to North American market penetration, the bigger question is whether Xchanging will be able to upsell its procurement services offerings to the MM4 customer base. While MM4’s relationships will no doubt open doors – our own reference checks confirm that customers are generally very enthusiastic and satisfied with the sourcing technology upstart – there is no guarantee that solid software customer relationships will translate to the successful up-selling of higher-end BPO services, which are often sold at two or three levels higher in a procurement or finance organization.

What’s perhaps more interesting in the long term – and certainly a surer bet given the right incentive structures for the teams to work together – is how the transaction could help Xchanging differentiate its own offerings and go-to-market approach, including the ability to blend together hybrid category management, skilled staffing, market intelligence, and technology solutions. Others in the procurement BPO space are also chasing a similar vision (e.g., Infosys), yet it remains early days for this true platform-as-a-service approach.

It’s still impossible to call winners, as the race has really not yet begun for this integrated platform model. In addition, Xchanging faces significant global competition in the existing market for traditional, category-led procurement BPO models from Procurian, GEP, Proxima and Accenture, among other firms, all of whom continue to make significant investments in building deep indirect, direct and services spend expertise and proprietary capabilities into their offerings.

Further, the procurement managed services landscape is blurring with BPO providers competing in this growing market that counts both consultancies and BPO; these firms include Accenture, Denali, Deloitte, Infosys, GEP, and Procurian. Add to this market the growing consumption of knowledge process outsourcing (KPO) products in procurement centered on category intelligence and forecasting, from providers such as The Smart Cube, and the landscape further blurs.   We will be publishing some deeper analysis and insights on the convergence underway in the procurement services spectrum (which includes information services and application services) soon on Spend Matters PRO, but suffice to say it's going to be a 'dynamic' set of events. For example, the challenge with BPOs creating externally facing MI capabilities is that they have historically developed category and market intelligence as a basis on which to deliver core BPO services and some consulting services where appropriate. These firms have not generally been set up from a packaged solution perspective to "sell" category intelligence outside of broader services -- at least not yet. However, many are sitting on treasure troves of data, and are beginning to expose these in their marketing efforts (e.g., Procurian) with proprietary trending data, indexes, and selected industry insights. Commercialization would seem a logical next step, and it is our guess that more nimble BPOs will be the ones most likely to deliver on this promise (e.g., GEP).

While there are not yet any clear winners in the fragmented are of procurement services, Xchanging is clearly betting on proprietary technology and capability to stand out from the crowd. Ed Cross, the Executive Director of Procurement at Xchanging, told Spend Matters: “Sourcing is very much central to what we do – as is e-sourcing. The benefits of owning a solution come in multiple ways. First, consider that with our own system, we can capture and keep our market knowledge in once place. This includes proprietary pricing metrics, market data, best practices, category templates, and the like in a single system that confers advantage to our clients. We can also now guide the development path of the solution in new ways to create additional differentiation in our offerings.”

Ed told Spend Matters that the MarketMaker4 business will continue to operate independently as a separate company based in the US. “We do not want to dilute their focus,” he suggests. “We want them to act independently and continue to build a next generation sourcing cockpit and control panel for procurement.”

Spend Matters will soon release its review of the MarketMaker4 toolset as part of our analysis of the overall e-sourcing market landscape. Our early analysis of the MarketMaker4 solution suggests the following:

  • The user interface and experience for sourcing event creation, category management, and related capabilities are unlike anything else most users are likely to encounter (in a positive way). The design is unique.
  • MarketMaker4’s dashboards that span category management information, event activity, market news/feeds and commodity information are integral to differentiating the toolset.
  • The tool has all the standard bells and whistles for RFI, RFX, auction formats, etc., although it lacks the advanced sourcing capabilities (e.g., expressive supplier bidding, scenario creation, constraint-based optimization) of specialists such as CombineNet (a SciQuest company), Trade Extensions, BravoSolution, and Iasta.
  • MarketMaker4 is further ahead than other sourcing tool providers in embedding category/market intelligence as a core component of the offering – this is one element that really causes the solution to stand out.
  • The cockpit/dashboard concept that MarketMaker4 brings to sourcing (see below) can be extended to other areas of procurement (and beyond). This is no doubt something Xchanging had been eying in this transaction as well!


Stay tuned for further coverage of the transaction and Xchanging/MarketMaker4 combination on Spend Matters Plus/PRO later today and next week.

Disclosure: MarketMaker4 and Xchanging are sponsors/clients of Spend Matters or Spend Matters affiliate companies. 

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