In recent years, we’ve spent thousands of hours working with private equity groups, CEOs and boards to evaluate acquisition targets — and with sellers to optimize exit scenarios and outcomes in the procurement solution market. In each M&A advisory or SolutionMap due diligence benchmark engagement, there has not been a single study in which we have not learned something new as a team. While from a seller perspective specific tactics can change over time based on conditions in the capital markets, the overall economy and other externalities (e.g., the current “dry powder” excess), there are well over 20 universal tips that we’ve identified that can apply in nearly all scenarios.*
So we decided to write this Spend Matters Nexus brief to share our top 20 lessons learned from the perspective of sellers’ to maximize their private equity, investment and strategic buyer outcomes (based on working “the other side” of the transaction). Today, we start with an initial five tips to prepare wisely (ideally) before a process begins. In the second installment, we’ll continue to share the next five tips for preparing wisely as the actual process approaches (i.e., “pre-process” tips). Then in Parts 3 and 4, we will jump to the actual deal process itself, offering tips for stewarding the effort and driving to an optimal outcome.
Jason Busch serves as Managing Director of Spend Matters Nexus, a membership, research and advisory organization serving technology acquirers (private equity, corporate development, etc.) and CEOs in the procurement and finance solutions marketplace (including contract management, B2B marketplaces/connectivity, indirect procurement, services procurement, direct procurement, commodity management, payment, trade financing, GRC/third-party management and related adjacent sectors).
Two weeks ago, Morningstar reported that Proactis had “received a takeover approach from an unnamed U.S. investor, together with a number (of) expressions of interest,” and that its bankers would review the offers. For those not familiar with the UK-based Proactis, the procurement solutions provider has deep spend management roots on both sides of the Atlantic spanning the private and public sectors, owing to numerous acquisitions made over the years, including, most recently, Esize in 2018.
This Spend Matters PRO and Nexus analysis provides a cursory overview of Proactis’ assets based on past coverage and analyzes the current situation and opportunities for the firm and potential acquirers — as well as different segments of acquirers that may be interested beyond financial buyers alone.
Last week, Procurement Leaders announced it had been acquired by World 50, a somewhat “hush hush,” invite-only executive membership organization that does not do much if any PR (although we personally get a chuckle out of the “invitation only, private club” model in a commercial enterprise). From sources we have spoken with, we can best describe World 50 as a Fortune 500 version of YPO or Vistage, with member groups specific to certain functions (e.g., marketing/CMOs, HR, etc.) In contrast, Procurement Leaders is a conference business that leveraged its core success to add other membership-based subscription components.
The first installment of this two-part Spend Matters PRO and Nexus brief provides insight into Procurement Leaders and World 50, and the combination of two providers. The second installment provides analysis and recommendations for executives (in procurement) who are current Procurement Leaders members (or are contemplating membership) as well as Procurement Leaders sponsor (provider) analysis. Finally, we list alternative models/providers that organizations may want to consider.
This research brief is based on public information sources, primary research and interviews.
Procurement Leaders — an organization known for its executive conferences, membership and research in the procurement sector — has announced its acquisition by World 50, an executive membership organization. Procurement Leaders CEO Nandini Basuthakur, announced the news Wednesday, saying: “We will continue to offer our unique suite of insights, applications and connections that accelerate global and cross functional transformation to our customers. This will now be further strengthened by the pairing of World 50’s powerful access across the broader C-suite.”
Icertis announced today that its latest funding round raised $115 million and that the provider of contract lifecycle management (CLM) is now valued at more than a billion dollars, reaching proverbial “unicorn” status.
The funding round was led by two groups, Greycroft and PremjiInvest, with participation from B Capital Group, Cross Creek Advisors, Eight Roads, Ignition Partners, Meritech Capital Partners and PSP Growth, according to a press release. The latest round brings total funding to date to $211 million, the release said.
Mark Terbeek, a partner at Greycroft, said in the release: “We’ve seen (Icertis) become the undisputed CLM leader, acquiring a huge stable of blue-chip customers and generating a return on capital that is among the best we’ve ever seen. We have no doubt they will become the next giant in the enterprise SaaS market.”
The release also noted that “the AI-infused Icertis Contract Management (ICM) platform is used by companies like 3M, Airbus, Cognizant, Daimler, Microsoft and Sanofi to manage 5.7 million contracts in 40+ languages across 90+ countries.”
Icertis is private and doesn’t disclose revenues, but it has been growing extremely quickly (claiming 125% CAGR over the last four years), and with over 800 employees, a forward-looking revenue run rate approaching $200 million seems reasonable, and only requires a 5X multiple to get to a $1 billion valuation (we believe the revenue multiple to be higher than this).
Also, Icertis is a clear market leader in the CLM space based on our latest Q2 2019 SolutionMap deep-dive competitive assessment (available here for free). And, Icertis competitor Exari was recently acquired at roughly a 10X multiple, so there should be little doubt about Icertis’ favorable prospects.
Icertis announced that its new $115 million in funding will be used for continued product development in adjacent product areas (and geographies), verticalization, possible acquisitions, blockchain development and, of course, AI — which is red hot in CLM.
Spend Matters has covered Icertis for years, and while the firm’s stated mission to “become the contract management platform of the world” may seem a bit audacious, the firm has executed historically well due in part to its strong management team and focused strategy as a true CLM pure play that doesn’t focus on any one particular business process area (e.g, within the sell-side for customer contracts).
The firm is also buoyed by the fact that the CLM market is throwing off its shackles as a place for glorified document management systems set up by legal departments to transfer commercial risk to counterparties. Rather, contracts are becoming the ultimate system-of-record for B2B commerce, not just from a legal department standpoint, but a financial one (e.g., where contracts become the new ledgers that augment the G/L), a regulatory/risk standpoint, and an operational one relevant to any place where internal/external stakeholders make commitments to each other.
“There is a subtle shift happening within the scope of contract and commercial management (CCM), and a not-so-subtle shift that is also happening within the digital realm (e.g., namely artificial intelligence, low-code platforms, open source, “XaaS”). What’s happening is that as contracts get digitized and more deeply modeled, they are becoming the single most important piece of master data within the enterprise that touches virtually every single stakeholder within these core processes and also within corporate functions such as R&D, risk management, strategic planning, treasury, audit, sustainability, digital/innovation and others.”
In the rest of this Spend Matters PRO / Nexus brief, we’ll examine the following topics:
* Icertis’ prospects relative to multiple CLM market segments and competitors
* How CLM’s evolution to “CVM” impacts Icertis. (Think of CVM as “extended CLM” on steroids.)
* M&A, exit and other considerations for Icertis — including potential acquirers as an alternative to an IPO.
And in a subsequent deeper dive in the August/September inaugural Spend Matters Nexus members’ newsletter for private equity firms/investors, corporate development teams and solution provider CEOs, we’ll feature Icertis and analyze:
* Icertis’ strategy: lessons learned and key takeaways
* Valuation drivers (for Icertis and similar firms) and possible Icertis M&A acquisition prospects/targets
* The prospects for procurement suite providers with legacy CLM capabilities and Apttus, Conga and others in a CVM world
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.
As I hinted at last week, we’re excited to announce the launch of a new research, advisory and networking organization — Spend Matters Nexus.
The Nexus membership program is designed for investors/acquirers (private equity, corporate development, etc.) and solution provider CEOs in the procurement and finance technology/solution ecosystem. Membership offers a new strategic lens to the solution areas covered on Spend Matters.
Nexus was borne out of an increased demand for research subscriptions, due diligence and strategy support with our private equity clients in late 2018 (which has picked up exponentially this year). But recently, our team realized there was a flip side to working with technology acquirers — providing relevant market intelligence for solution provider CEOs, boards and leadership teams on their own strategy, corporate development and business development/partnership initiatives.
Spend Matters Nexus will hopefully become invaluable for both groups. The goal is to provide market intelligence, strategy and due diligence advisory for private equity firms and investors. For CEOs, boards and leadership teams, the program offers insights spanning strategy, corporate development and business development/partnership topics. For all members, there are invitation-only networking opportunities.
Coupa has assembled three behind-the-scenes weapons — non-product, non-solution and non-R&D teams — which it uses to great effect to collectively win individual battles against competitors and, at least so far, the broader growth war in the source-to-pay market from a logo growth perspective in recent years. These are effectively “special forces” groups that have leverage far beyond their individual ability to contribute alone (but would not be successful without the broader Coupa arsenal that they’re supporting).
Other vendors may have one of these weapons individually. Or on paper. But collectively Coupa is the only one that combines them to great effect as it moves its chess pieces around the tactical and strategic board. This Spend Matters PRO brief provides a unique take from the perspective of long-time industry insider who has seen them put to use effectively from a unique vantage point. Today we start by exploring the first of Coupa’s special forces teams: corporate development.
Jason Busch serves as Managing Director of Spend Matters Nexus, a membership, research and advisory organization serving technology acquirers (private equity, corporate development, etc.) and CEOs. The views expressed in this research brief are his and do not necessarily reflect that of the Spend Matters analyst team.
What's going to happen at the G-20 economic summit in Osaka, Japan? It began today, and we have two stories giving insight into what may happen when Trump and China's leader sit down for trade talks Saturday. In another story, Apple is reportedly moving its Mac Pro production to China, bucking trends of supply chains possibly leaving China. And Spend Matters has some M&A insight into the procurement software market. Learn about the 10 types of businesses being targeted. Afternoon Coffee: It's the jolt of procurement and supply chain news that you need on a Friday.
By Spend Matters’ count, there are hundreds of cloud technology providers in the procurement technology sector, and well over a thousand if you count providers with a solution orientation (which may include market/category intelligence, consulting, advisory and related capabilities). Investor and M&A interest across this landscape of providers — from both strategic and financial buyers — is at an all-time high.
We define procurement solutions as technologies and services that target a range of areas that include:
— Core procurement (i.e., source-to-pay, procure-to-pay, etc.)
— Direct procurement
— Services procurement
— Contract management (that goes beyond supplier contracts)
— Accounts payable
— Trade financing (B2B Fintech)
— B2B (transactional connectivity, marketplaces, aggregation and GPO models)
— Third-party (supplier) management, from a GRC standpoint as much as from a procurement standpoint
In the first installment of the series, we introduced the first five groups of providers attracting the most investor and buyout attention: procurement technology suites, transaction-focused solutions, payment/financing providers, nimble solutions and leveraged buying/GPO models.
Today, we continue our focus on the “who” — exploring the final five groups of providers, including sharing illustrative providers in each segment and why buyers are attracted to each group. The five groups are:
Series Abstract: This multi-part Spend Matters PRO research brief explores the “who” (i.e., what types of companies are attracting the most interest and the profile of different buyers), the “why” (i.e., typical investment theses) and the “how” (i.e., the mechanics of deal processes and what is unique to the solution area, including where buyers that are new to the sector often have a higher learning curve than expected). It also explores some important dynamics in the market that have changed in recent months as buyer interest from both the strategic and financial sides increases.
Private equity — and other — buyout and M&A interest in the procurement solutions market is at an all-time high. We define procurement solutions as technologies and services that target a range of areas that include:
— Core procurement (i.e., source-to-pay, procure-to-pay, etc.)
— Direct procurement
— Services procurement
— Contract management (that goes beyond supplier contracts)
— Accounts payable
— Trade financing (B2B Fintech)
— B2B (transactional connectivity, marketplaces, aggregation and GPO models)
— Third-party (supplier) management from a GRC standpoint as much as from a procurement standpoint
This multi-part Spend Matters PRO research brief explores the “who” (i.e., what types of companies are attracting the most interest and the profile of different buyers), the “why” (i.e, typical investment theses) and the “how” (i.e., the mechanics of deal processes and what is unique to the solution area, including where buyers that are new to the sector often have a higher learning curve than expected). It also explores some important dynamics in the market that have changed in recent months as buyer interest from both the strategic and financial sides increases.
Today we begin by exploring the “who” by segmenting the types of targets that are garnering the most attention into 10 areas and exploring the first five in detail (procurement technology suites, transaction-focused solutions, payment/financing providers, nimble solutions and leveraged buying / GPO models), including sharing illustrative providers in each segment and why buyers are attracted to each group.
* Our parent company, Azul Partners, has directly advised on more than half a dozen transactions in recent quarters, primarily working in a due diligence and strategy capacity for both strategic and financial buyers, leveraging our proprietary SolutionMap benchmark database, customer satisfaction/peer review benchmarks, PRO research, SolutionMap Insider research, and deep domain knowledge. Azul Partners works with investors in two ways. First, we partner with clients as exclusively retained subject matter experts in these markets. Second, we serve as an “arms dealers,” providing subscription research to hundreds of clients.
Four years ago, during the last big M&A frenzy, I published a post on my Sourcing Innovation blog on The First 4 Questions to Ask During Any Mega-Acquisition that is still just as relevant today as it was four years ago.
And while it was very direct and maybe even a bit confrontational, sometimes it’s a good idea to be direct because sometimes you need to let the new vendor know you’re not in the mood for any shenanigans. The reality is that while some mergers and acquisitions are with the intent of creating a better combined company that can better serve the respective customer bases, not all mergers and acquisitions are done for this reason. Some are done just to eliminate competition, and others are arranged by investors for the sole purpose of a short-term money grab (which will be accomplished by a short-term PE sale or initial public offering once the balance sheets are puffed up and the overhead reduced).
So, without further ado, let's get to the four questions you should ask to find out whether you and your new vendor are on the same page.
