Back to Hub

2020 M&A and Procurement Investment Predictions: 10 Trends to Watch (Part 1)

01/10/2020 By


M&A and investment activity in the procurement sector has started 2020 with a bang based on Coupa’s acquisition of Yapta and CVC’s $200 million investment in EcoVadis (which came on the heels of Workday’s buyout of Scout RFP in November). Spend Matters actively tracks over 600 procurement technology providers, of which more than 300 are featured and segmented by capability (suites and modules) in a recent PRO research brief and graphic (see below).

But we believe the actual number of providers — if we consider peripheral areas focused on category and market intelligence, analytics, services procurement and adjacent finance, supply chain, risk and supplier-related GRC applications that are still of interest to procurement organizations as the primary economic buyer — brings the list to over 1,000 different providers.

Many of these providers will raise capital or get acquired in 2020.

But what trends are driving acquisition and investor interest in the sector, and what types of transactions should we look for?

This Spend Matters Nexus brief provides an introductory analysis of sector M&A and investment predictions for 2020, exploring the first three of 10 trends we’re starting to spot:

  • Trend 1: Competition grows between strategic and financial buyers (and those that fall somewhere in the middle).
  • Trend 2: ERP and big tech get more active in the sector.
  • Trend 3: Buyers and investors expand their definition of procurement technology.

Subsequent briefs in the series will cover additional trends as well flesh out some of the more important strategic and financial buyer (and investor) priorities on a more granular basis. Let’s get started!

Jason Busch serves as Managing Director of Spend Matters Nexus, a research and advisory group that works with sponsors, CEOs and boards on due diligence, M&A strategy and product strategy. Spend Matters and Spend Matters Nexus are owned by Azul Partners

10 Trends for 2020

Trend 1: Competition grows between strategic and financial buyers (and those that fall somewhere in the middle). Based on our work with both financial and strategic buyers, we are increasingly seeing interest in similar assets by both groups. There are three specific inputs driving this prediction:

  • The amount of dry power from financial buyers (private equity funds, including crossover funds, regional and small/mid cap as well as global large cap) that have expressed interest in the procurement sector is significantly larger than at any point in history that we have tracked.
  • Tech specific private equity investing is on the rise (e.g., number of firms with specialized funds, new funds, etc.) and procurement stands to benefit as a result.
  • Public SaaS company valuations and balance sheets (not only for specialists like Coupa but other technology providers across finance, supply chain, HCM, service/asset management, analytics and related areas) are also healthy.

We believe this is already starting to create greater competition for transactions and will potentially drive up valuations further, a situation that will reward those firms and strategic buyers that are successful at building relationships before processes begin as well as driving exclusivity through relationships, leverage, terms and other means.

Trend 2: ERP and big tech get more active in the sector. As our previous coverage suggests, we believe Workday’s acquisition of Scout RFP was both an innocuous way (i.e., non-invasive from an integration perspective) to accelerate its penetration into procurement as well as a harbinger of ERP interest in the sector generally. But it is not just ERPs with smaller procurement footprints today that represent potential buyers of assets in 2020. We hypothesize ERP and big tech interest will come from multiple areas:

  • SAP and Oracle — The two ERPs with the largest footprint and penetration today might be interested in plugging gaps (e.g., contract management), accelerating penetration in specific verticals/sectors and/or bold general moves given the attractive TAM (total addressable market).
  • Workday — Is Workday done on the M&A path post-Scout? While we suspect it will continue to build out its own transactional procurement capability (i.e., procure-to-pay), we would not be surprised if it makes other moves to accelerate market penetration and drive upsell/cross-sell within its large HCM and growing financials base.
  • Sage, Infor, Microsoft, etc. — These ERPs, all of which have placed limited emphasis on source-to-pay, AP automation, etc. to date (perhaps with the exception of Infor, which has built quite a roster of capabilities on the direct materials side of procurement already), all represent logical buyers of assets given the frenzy of activity that has begun to take place, as well as the realization of a “now or never” opportunity in their installed base.
  • AmazonAmazon Business is already one of the largest stealth procurement solutions providers (technology as a Trojan horse to the marketplace). Might it make a move? There are numerous areas that could help makes its offering more attractive to procurement while supporting its core interest in driving adoption and marketplace volume.
  • Google — Don’t laugh! Google is the most-used supplier directory in the market today (by a country mile) and its big data and AI/machine learning team braintrust could be applied to specific procurement requirements, including analytics, supplier management, etc. Acquisitions could accelerate its efforts.
  • Other Big TechServiceNow, Salesforce, Anaplan, Blackline, Blackbaud, Square, DocuSign, QuickBooks and Xero, among countless others, all would stand to benefit (for different reasons) by expanding more deeply into transactional procurement, supplier management, AP/B2B payment, contract management and related capabilities at either the SMB or enterprise levels (or both).

Trend 3: Buyers and investors expand their definition of procurement technology. When many people think of procurement technology, they immediately jump to just a handful of segments: e-procurement, invoice-to-pay, sourcing, supplier management, contract management, spend/procurement analytics and services procurement (temporary staffing, MSA/SOW, etc.). This limits the market to about 300+ providers. But there are many additional sectors in the market, some with hundreds of additional providers alone!

These include:

  • Category and market intelligence providers (there are hundreds of highly industry and category specific providers that we are starting to track)
  • Gig/freelance economy providers
  • GRC vendors (focused on suppliers)
  • Direct materials procurement
  • B2B payments/trade financing
  • Broad-based procurement and finance analytics providers (not just “spent” analysis vendors!)
  • Commodity management
  • Adjacent finance areas (that touch on procurement) including accounts payable automation, treasury management, etc.
  • Automation providers (RPA, AI, etc.) with growing procurement offerings

We are beginning to see buyers and investors expand their definition and interest in the sector to these areas. Verisk, in purchasing PowerAdvocate, was one of the first to spot a fast-growing provider that may not have been seen by others as slotting in nicely into the procurement technology area.