Proactis Acquires Intesource at a Cheap Valuation

Earlier today, Proactis, a small UK-based procurement suite provider, announced it was acquiring retail/grocery sourcing specialist Intesource. Ironically, Spend Matters believes Intesource has a far more differentiated – relatively speaking – set of offerings than Proactis. Given Intesource’s focus on strategic sourcing, supplier management, and related activities and Proactis's focus on purchase-to-pay solutions, it is a complementary acquisition. Yet the low valuation would suggest Proactis is buying Intesource as a services company, not as a software provider.

Here are the headlines from the press release:

  • Proactis is paying “3.9 million, payable in cash on completion ("the Acquisition"). The net cash consideration is expected to be approximately $2.9 million as Intesource is expected to have approximately $1.0 million of cash at completion.”
  • Intesource has “over 25 new clients and significant scope for cross-selling opportunities.”
  • “Clients follow a subscription based business model with, typically, 2 to 4 year term contracts.”
  • “Annual recurring revenue to be acquired as part of the Acquisition is anticipated to be in excess of $4.5 million.”

Spend Matters has spoken to a number of Intesource customers in recent months and found that the provider is typically deeply embedded as a managed services provider inside their customers. Their specialty is in what is best described as “multiple location” sourcing, spend, and supplier management, especially in the food, retail, and casual dining areas (i.e., companies that have numerous retail or other locations).

Intesource is one of the only providers we’ve ever encountered that offers an unmetered full-service sourcing solution going beyond just e-sourcing software to include services centered on category discover, roll-out plans, specification development, SKU rationalization, supplier research, supplier qualification, event structure, and supplier development. They’ve also expanded into additional areas, including contract management, fuel programs, vendor risk management, and price-list replenishment.

Our initial analysis says Proactis is getting a bargain. Intesource’s customers seem like a very satisfied lot and the full service model appears sticky given the package of software, domain expertise, and related services they bring.

As my colleague Peter Smith writes, “So for all the hype around firms selling for 5 or even 10 times revenue, Proactis have picked up what looks like a solid business for less than one times revenue. They're paying $3.9 million, but there is a $1 in the Intesource balance sheet, so it is really only $2.9M. So that represents about 0.6 times revenue or a P/E ratio of just 5 times pre tax profit.”

Stay tuned for further coverage of the acquisition in the coming days. 

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Voices (3)

  1. Sean McDonough COO, PROACTIS:

    Hi Jason, I think your comments/views on the full service element, if you will pardon a lame expression are “right on the money”. We have for quite some time held the belief that the market is more interested in the outcome than almost anything else. This trend has been accentuated by a distinct capacity shortage of customer procurement resources, providing the best technology is seldom enough to fully realise the benefits, savings and hit those KPI’s for most projects. Hence, putting aside all the financial/product/customer synergies that made the deal a true “no brainer”, in the long term it will be the effect of “full service” on the PROACTIS group that make this a significant deal for our customers and shareholders alike.

  2. Jason Busch:

    Thanks Simon … I’m excited to see how the post-merger stuff comes together. Don’t underestimate the full service component of Intesource and how some of that thinking can be applied to P2P as well. There is a need for it.

  3. Simon Dadswell, Marketing Director, PROACTIS:

    Thanks Jason –

    Yes, this is exciting news and the second PROACTIS Acquisition in 2014 (the first being EGS in January) which further strengthens the PROACTIS position as a global eProcurement vendor. PROACTIS has operated in markets beyond the UK for some years now with over 400 clients across 90 countries worldwide. The Phoenix Intesource office will add to PROACTIS offices in the UK, in the US at Boston, in Australia at Brisbane, in Holland at Amsterdam and in India at Mumbai.

    The strategic fit of Intesource and PROACTIS looks compelling in a number of ways: 1) Intesource will add additional expertise and footprint in the US market (PROACTIS growing US client base already includes one of the world’s largest hedge funds providers, Fortune 100 organisation, Central Government Agency, and a string of multi-location commercial and non-profit organisations – implementations targeting multiple Source-to-Settle or Procure-to-Pay business processes and typically achieving a large % of spend under management). 2) Intesource recognised expert reverse eAuction offering, delivered as true SaaS (Software-as-a-Service) is complimentary to PROACTIS existing service and software suite – a complete end-to-end suite of Supplier Information Management, SRM, Contract Management, Sourcing, Supplier Content Management, Purchase-to-Pay, eInvoicing solutions in a single cloud platform). 3) Intesource clients will now have access to the broader capability of PROACTIS solutions.

    Interesting times ahead for sure! PROACTIS reported record revenues for the year ended 31 July 2013 and it is scheduled to deliver further growth in its current financial year. We are delighted to have identified such a strong partner as Intesource for our second acquisition.

    Hope to update you soon on progress.

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