Why Xchanging Acquired Spikes Cavell: Initial Analysis

Earlier today, Xchanging announced it is acquiring Spikes Cavell, a UK-based spend analysis provider with operations in the US and UK, serving both the public and private sector. Spikes Cavell made a name for itself in the US market as a specialist in public sector spend analysis but has recently started to build traction in the private sector as well. The transaction values Spikes Cavell at over 4X trailing revenue and includes both cash and earn-out provisions.

According to the announcement, Xchanging “has agreed to acquire 100% of the spend analytics company Spikes Cavell Analytic … for a total potential cash consideration of up to $11.5m … The acquisition is subject to certain customary closing conditions and is expected to complete by the end of March 2015.”

The press release further reports that Spikes Cavell “is a British company, which provides spend analytics technology and services mainly to public sector institutions in the UK and higher education authorities in the USA, but also increasingly to the private sector.” The announcement notes Spikes Cavell had 35 employees at the time of the announcement and 60 lead customers.

Spend Matters has previously explored the Spikes Cavell solution in detail in our Spend Matters PRO research. You can read Spend Matters solution analysis of Spikes Cavell and our exploration of public sector spend analysis requirements here, here and here.

Further, Spend Matters UK/Europe Managing Director Peters Smith, a former public sector CPO, provided an update on Spikes Cavell in a quick overview last August. Peter has known the firm for some years and his past analysis suggests that Spikes Cavell has “worked out a way to service small clients well, providing impressive support material and online help so the physical support team (and its cost) is kept to a minimum. That means their price points start at a level which is a feasible option to small councils for instance, who don’t have much money to spend.”

Peter also observes that, “one of their very largest clients is the Scottish government, for whom they analyze some £10 billion of annual spend across most parts of the public sector in that country.” Regarding the front-end of the technology (i.e., user interface for drilling into spend data), he notes that, the BI and dashboard interface of Spikes Cavell is “not perhaps as ‘sexy’ as those competitors who use Qlikview and Tableau.”

Spend Matters US and UK/Europe teams will provide deeper commentary and analysis for our readers on our free sites as well as Spend Matters PRO in the coming days. But our quick-take analysis suggests the following:

  • The transaction provides further evidence of growing M&A activity in the procurement sector and the blurring of lines between professional services, BPO and technology
  • Xchanging’s emphasis on acquiring specialized technology assets within the procurement sector places it at an advantage relative to other BPO providers in accelerating the rate of customer acquisition, which can lead to the selling of broader outsourcing and managed services
  • The potential for up-selling and cross-selling technology and services within the Xchanging, MM4 and Spikes Cavell customer bases will accelerate with the transaction
  • While full procurement outsourcing has not taken off in the UK public sector, there are undoubted opportunities for Xcanging to cross-sell software in particular – and perhaps services – into some of Spikes Cavell’s major UK government accounts
  • The relative small size of the transaction (and acquired company) highlight the importance of strategic acquisitions in the sector and the scarce number of small-to-midsize technology assets that remain independent and have material and growing customer traction – we expect material consolidation of the sector in 2015 for this reason
  • Specialized public sector solutions are likely to factor into increasing play in both the Americas and Europe in 2015. We encourage our readers to visit the Spend Matters Network sites Public Spend Matters Europe, Public Spend Forum and Spend Matters Mexico/LATAM to learn more about the rising role of technology in country-specific public sector procurement
  • The acquisition should provide additional R&D capability and investment for Spikes Cavell to continue to build out specialized public sector solutions and further expand into the private sector, including providing tighter linkages with MM4’s sourcing and related offerings
  • The distribution that Spikes Cavell will gain through Xchanging and MM4 may put further price pressure on competitors given Spikes Cavell’s historic (at least in the public sector) low pricing if post-acquisition pricing remains consistent

Disclosure: Spikes Cavell and Xchanging are past or current clients of Spend Matters. Spend Matters Group, LLC, provided consulting services to Spikes Cavell.

Recommending Research and Commentary

Spikes Cavell and Public Sector Spend Analysis:

What Makes Public Sector Spend Analysis Different: Spikes Cavell Vendor Analysis

What Makes Public Sector Spend Analysis Different: Motivations and Process Requirements

What Makes Public Sector Spend Analysis Different: Summary Recommendations and Lessons Learned

How Procurement Solution Providers Can Transition to the Public Sector

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MarketMaker4 – Not Just E-Sourcing But Also an Information Platform for Sourcing

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