A Critical Take on M&A in Procurement Technology

My colleague Michael Lamoureux, who runs the blog Sourcing Innovation and is also a contributing analyst at Spend Matters, recently posted a critical take on the state of M&A and procurement. In his post, M&A: Confusion or Clarity, Michael essentially argues that, despite rising M&A activity within the extended procurement technology ecosystem, the deals often makes less sense for firms to come together than it should.

But is he right? As someone who has directly been involved in over a dozen transactions in the past few years – as a formal or informal advisor to different parties, including the private equity community – I think Michael makes a number of solid points but misses the mark in terms of why deals get done, as well as many of the more subtle reasons behind the 1+1=3 synergies many of the providers in the space that have done deals are starting to realize.

These are some of the basics of his argument:

  • Even years following their consummation, transactions often remain “in the red” from an accretion and dilution perspective. (Michael cites the case of SciQuest’s acquisition of CombineNet)
  • Acquisitions often have functional overlap between the parties involved, limiting potential up-sell and cross-sell synergies.
  • Providers often develop on different technology stacks and platforms. As Michael notes, “Many acquirees often use different platforms. Right now, .NET, true C++, Java and Ruby on Rail frameworks are all quite likely in the space and many acquisition frenzies result in a the merged company having three or more platforms to deal with.”
  • Integration requirements are often overlooked or under invested in. Specifically, he observes, “There is the balance of how far to take integration in the short term when sales are rapidly needed to justify the expenditure, pay for the overhead loss as reorganizations occur and support new personnel to plan development of the next version, which will, someday, integrate everything on one underlying stack.”

Michael sums up his argument noting that it is sometimes “quicker, easier and more cost effective to be patient, just build everything in house from the ground up, and go to market with a truly integrated solution [that] offers end-to-end visibility because it takes top talent to pull off a successful technology integration,” rather than acquire.

In a related analysis and commentary on Spend Matters PRO, Making the Case for M&A in Procurement Technology, I share a number of case studies from recent activities in the market that challenge Michael’s position. The deals all present compelling reasons to embrace M&A in the procurement solutions sector, reasons that might be easy to gloss over without digging far beneath financial disclosures and press releases accompanying such transactions.

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