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Jaggaer Deal: 5 Enterprise Value Creation Takeaways Learned From Shaping a Procurement Workhorse (Not Just a Unicorn)

07/15/2019 By


Last week, Jaggaer announced that Cinven, a European-based private equity firm, had acquired a majority stake in the provider. Various sources, including Bloomberg, place the enterprise value of the transaction, including debt, at $1.5 billion. But as in all private company valuations, it is important to exercise caution in reported numbers and even more so “unofficial” numbers, given the various minority ownership interests, debt, covenants and other considerations associated with such a transaction.

Regardless, we suspect that Accel-KKR, which previously held a majority stake and retains an ownership interest in Jaggaer — as well as Italmobiliare, the original owner of BravoSolution, and a near 10% owner in Jaggaer prior to Cinven’s investment — post transaction, materially increased the enterprise value of the combined SciQuest, BravoSolution and Pool4Tool assets that it brought together under the Jaggaer umbrella. This Spend Matters PRO and Nexus research brief quickly analyzes the state of Jaggaer post-Cinven investment and provides five takeaways for investors, CEOs, corporate development professionals and others curious about the synergies that Accel-KKR created.

The State of Jaggaer

From a tech investment label perspective, we can best describe Jaggaer as a procurement workhorse (or team of horses given the multiple products in its stable), a description more apt than the usual “unicorn” label. Yes, it has a valuation of over $1 billion, based on various reported sources, including Bloomberg and PitchBook (Spend Matters Nexus will provide additional detail to members in our Q3 newsletter). But given the maturity of its products/solutions and customers — not to mention its profitability — it is more of a reliable procurement workhorse from a market perspective, than a bright, shiny unicorn keeping up with the “rule of 40” growth expectations.

Jaggaer, of course, still faces a critical set of challenges to fully unify its various acquisitions into a true, single suite built on top of a common data model and platform. But this is also the case with SAP’s Intelligent Spend Group — even more so than Jaggaer — and even with Coupa in the case of DCR Workforce and Exari. Still, work remains if Jaggaer’s new Jaggaer ONE suite is to live up to its namesake. But even short of this, Jaggaer can continue to be successful in the market, as its individual modular capabilities are generally at or above the Spend Matters SolutionMap analyst/functional benchmark across the Source-to-Pay spectrum (and from a Procure-to-Pay perspective, Jaggaer exceeds the benchmark average for customer satisfaction as well, a leading indicator of future growth).

Spend Matters will publish much greater insight into the state of the combination of Jaggaer’s modules/products in the weeks and months to come. For now let us turn our attention to five key takeaways learned along the path that Jaggaer took in shaping a workhorse, not just a procurement solutions unicorn. While these may be of less interest to procurement practitioners and consultants — compared with those in the investment and strategy/corporate development worlds — they are important to understand at some level regardless of vantage point.

Takeaway 1: Consolidation Was (and Remains) a Smart Move for Enterprise Value Creation

While product gurus — including technology analysts on the Spend Matters research team — may question the true extent of how Jaggaer has fully integrated multiple product lines into a single, truly unified suite to date, the fact is that consolidation was (and continues to be) a key driver for enterprise value creation for the entity. Consider how Jaggaer, under Accel-KKR’s rigorous management methodology, has been able to roughly cut headcount in half and create a strongly profitable venture primarily from two organizations that were only relatively close to breakeven. This suggests the power of consolidation to drive economies of scale and the potential for upsell/cross-sell. Strategically, this is a takeaway that should not be lost on others in the sector, even if true suite unification with complex product lines should be measured over multiple years, not quarters.

In fact, Jaggaer’s strategy looks very much like ERP vendor Infor’s strategy that it kicked off nearly 10 years ago: Buy up multiple similar products, streamline the acquisitions, integrate them with each other on top of a new underlying platform, and then slowly port them to that new platform and network (Infor acquired GT Nexus back in 2015). Flash forward to today: Infor has roughly $3 billion in sales and looking to IPO with an enterprise value in material excess of $10 billion. That’s not a bad story to try to emulate — even if on a smaller scale.

Takeaway 2: Jaggaer Is in a Top Position to Create Leadership in the European Market

Thanks in large part to legacy BravoSolution customers (but also to a lesser degree legacy Pool4Tool customers) — combined with the relatively slow growth of traditionally European vendors in the sector — Jaggaer is in a strong position to lead the European market in this sector. Moreover, Jaggaer has shown it has the ability to add new customers to its existing strong European client rolls as well. In fact, the first “joint” customer we are aware that purchased integrated product lines for strategic procurement technologies (formerly BravoSolution) and procure-to-pay (formerly SciQuest) was a UK/European company.

Granted, Spend Matters research suggests that while other firms may be growing faster in the UK/European region today from a net new customer logo perspective, Jaggaer remains at the top of the leadership pack given its existing base and continued growth. In addition, with the integration, customer and market challenges that SAP must overcome with its new combined business unit, not to mention the migration of ECC customers to S/4HANA for core ERP (and integrating both to SAP Ariba applications/network, to SAP Fieldglass, and SAP Concur), Jaggaer is even better strategically positioned to take advantage of the European market opportunity.

Takeaway 3: Traditional Private Equity Playbooks Can Still Create Enterprise Value

Accel-KKR’s playbook with Jaggaer centered on creating economies of scale and operating efficiency and margin by bringing together multiple assets and closely managing costs while maintaining double-digit growth. This is a classic private equity operating model, one that can work especially well in “virtual goods” business such as enterprise software. Through driving to increased profitability and stronger — much stronger — EBITDA, private equity firms can create leverage far beyond the value of their capital outlay through debt issuance. Jaggaer is proof this model can work when it comes to increasing enterprise value for shareholders, even over a relatively short time horizon.

The challenge of course becomes one of creating similar value for customers — especially as the time horizon shifts toward the medium term. The Spend Matters analyst team has spoken to customers who’ve been frustrated by the lack of product development/consistent quality execution by Jaggaer, and although Jaggaer isn’t alone on this front, the more strategic challenge to Jaggaer that affects sales pursuits is the suite level integration challenge that doesn’t plague its competitors such as Ivalua, GEP, Coupa (mostly), and others.

Takeaway 4: Putting in Place the Right Sales, Marketing and Partner/Channel Teams (Commercial Leadership)

Prior to the Cinven’s investment, following the largely cost rationalization and rightsizing efforts that took place under Accel-KKR’s watch, Jaggaer has recently made progress putting in place commercial leadership to take the firm to the next level, especially with an eye to expansion globally, not just in North America. And from a communications/PR perspective, a steady stream of announcements suggests that the provider continues to make progress on customer centricity, verticalization, channel/partner and other fronts. While execution work remains, we view these efforts as positive signs that the next stage of growth will be as topline centric as it is EBITDA focused.

Takeaway 5: The Tide Continues to Rise

Procurement technology solutions — and market adjacencies in supporting finance, services procurement, risk management and related ecosystems — continue to thrive in a rising tide market. While regional or global downturns could potentially slow the growth of Jaggaer and others, the procurement solutions sector has shown itself to be remarkably resilient in past recessions. It is within this climate that through a combination of organic expansion (and continued suite unification) selling to existing and new customers combined with additional acquisitions that fill strategic product and other gaps, that Jaggaer has the potential to keep riding a rising tide that builds on the enterprise value creation, as evidenced by Jaggaer’s latest recapitalization.

Spend Matters Nexus members can contact Azul Partners for additional insight and takeaways on the transaction not published in this research brief. Additional coverage will be  featured in the August/September Spend Matters Nexus quarterly member newsletter. And as previously noted, Spend Matters PRO and SolutionMap research lines will publish much greater insight into the state of the combination of Jaggaer’s modules/products in the weeks and months to come based on recent solution briefings and demonstrations.