Tungsten Acquires DocuSphere: Initial Coverage

Yesterday, Tungsten announced its acquisition of DocuSphere, a niche provider of accounts payable automation and integration technology that largely flew under the radar of most finance and procurement organizations in the sector (its entire 2013 revenue was less than some of the larger accounts payable automation deals that have been completed in recent years). Spend Matters has not looked at the DocuSphere solution (we are scheduling a full demonstration this fall as well as customer calls). However, from our understanding, the solution is much closer to that of a Basware (in terms of full accounts payable automation) rather than focusing just on e-invoicing enablement.

Given this, we can largely conclude that the acquisition was done for two reasons: first, to extend Tungsten’s product capability outside of e-invoicing and supplier connectivity, and second, to bring additional volume onto the Tungsten network (which will enable the ultimate “origination” of greater financing activities).

As Tungsten notes in their press release announcing the transaction, “many companies require workflow and connectivity tools to support their invoice-automation initiatives, in particular when handling invoice exceptions and achieving straight-through processing. The combination of Tungsten's global supplier portal and e-invoicing services with DocuSphere's workflow and connectivity technology will help companies streamline their accounts payable functions from receipt of e-invoice to payment … The integration of DocuSphere with Tungsten Network adds certified integration tools that cover over 80% of the ERP software used by Fortune 2000 companies to Tungsten's services. It also provides Tungsten with increased control over the speed, cost, and quality of implementation with no need to rely on third parties or middleware providers.”

The acquisition was clearly not a shotgun marriage. Tungsten had partnered with DocuSphere earlier this summer and signed – to our knowledge – at least one joint customer contract. Moreover, given all the bankers running the Tungsten show these days – versus software and SaaS industry geeks – we can all but conclude the due diligence was extensive far beyond the small value of the transaction.

The deal appears to have been done for somewhere between 1.5-1.75X revenue (based on earn-out considerations). DocuSphere had $3.3 million of revenue in its 2013 financial year and posted a net loss of $400,000 that year. In the 12 months ending July 2014, it had revenue of $3.7 million, according to Tungsten. Overall on a price-to-revenue basis, the deal should be highly accretive for Tungsten. We also suspect the up-sell/cross-sell synergies will contribute to significant revenue growth for the DocuSphere AP automation capabilities in the next 12-18 months (especially given Tungsten’s expanding sales reach as it adds to the company).

Tungsten also noted it is raising 12 million pounds (Sterling) through the additional placement of new stock to finance the transaction and provide for additional cash to fund operations.

We will cover the transaction in more detail during the coming weeks on Spend Matters PRO once we have had the opportunity to talk with Tungsten and DocuSphere and explore the solution set and product roadmap of the combined organization.

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