Procurement Financials Content

A Due Diligence Survival Guide: What to Expect (Part 1: Passing Architecture & Structural Product Scrutiny)

public procurement

This Spend Matters Nexus series on due diligence kicks off Nexus as its own subscription stream apart from PRO content.

The series is a survival guide on the due diligence process for sellers, especially all the areas outside of finance and accounting (though we’ll eventually get to this part of the process). And we hope that acquirers and investors — even seasoned corporate development, PE and venture types — will find it useful as well. We unfortunately know some buyers who could have spared themselves some headaches had they been as anal as we are in many of these areas.

Perhaps the biggest challenge that executives going through a fund-raising or transaction process face is that they are not adequately prepared for all the curveballs — many of the Astros batters facing the Nationals Stephen Strasburg’s recent loopers come to mind — that might get tossed their way in the due diligence process.

There are so many areas that investors and acquirers might decide to take an extra look at that even world-class “hitters” might not see them coming. And even those who think they are prepared for all the pitches might not fully anticipate the twists and turns the ball might take just before it hits the strike zone (we’ll stop with the baseball analogies, but with one of us coming from the North Side of Chicago, we’re empathetically giddy about our friends in Washington being able to claim victory in the World Series for the first time, turning around what initially looked to be a modest season).

The 2019 baseball Fall Classic aside, fully preparing for diligence is about practice (a topic we’ll explore later in this Nexus series), and it’s one that we ideally recommend companies rehearse — even though few will be prepared from “regular season” play alone at the level that ideally they should be at. Regardless, even those that do not practice sufficiently will stand to benefit from a comprehensive checklist about what to expect.



In Part 1 of our series, we’ll start first with an overall list of areas to consider from a diligence checklist perspective. Then we’ll immediately dive into what to expect around architecture and structural product diligence. (Warning: This is deep!) In the weeks to come, we’ll crawl out of the technology weeds as our exploration continues.

And of course throughout this Nexus series, we’ll aim to put a unique spin on the topic for procurement, finance and supply chain software companies, as these are the software segments we’re most experienced in scrutinizing — and occasionally preparing or dressing up for a process.

Let’s begin.

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).

20 Tips to Maximize Private Equity, Investment and Strategic Buyer Outcomes (Part 8: Knowing Your Weaknesses)  [PRO]

In this Spend Matters Nexus brief, we’ll look at our next-to-last tip for sellers to optimize the outcomes of an exit process/liquidity event when selling to private equity or strategic buyers. Tip 19, know your weaknesses, may sound simple, but it is an area where blindspots are more common than 360-degree vision.

Our tip today centers on the notion that for sellers, it is helpful to not only be able to articulate areas for improvement in such things as product (mix, capability, etc.), team, geographic presence, etc. But it is also important to display the right level of self- and market-awareness in what you would like to do about it. That is, if given the resources to execute.

If you are just getting introduced to this series, start with the earlier tips. (see Part 1 , Part 2, Part 3, Part 4, Part 5, Part 6 and Part 7).

Jason Busch is the 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).

Leases lurk in businesses, leak money: Why lease spend isn’t managed well

Every department in a business has leases — from office printers to office space and routers to forklifts. But not all of this haphazard leasing and its hidden costs goes through the cost-saving negotiation and management provided by a procurement department. That rogue spend adds up, and businesses are starting to understand the full scope of their leasing spend and why it is so poorly managed.

Companies this year are seeing the full extent of this sprawling lease spend because a new accounting standard required that public companies move leases from the footnotes of their financial reports onto balance sheets. Private companies as well as state, local and federal government agencies will face the same reckoning over the next few years as they adopt these new accounting rules.

The new accounting standards have forced companies to wrangle all the leasing information across their business and put it into a centralized system in order to perform the necessary financial reporting. The unexpected benefit of this massive accounting compliance effort is that companies are now sitting on a pile of valuable information about their leases, which creates the promise for saving money and improving efficiency.

Defining AP Automation Functional Requirements (Part 5: Payment Options and Early Payment Financing) [PRO]

BuyerQuest

In the last installment of this five-part Spend Matters PRO series on accounts payable automation, we’ll list the functional requirements for payment options, like P-cards and financing programs.

AP automation capabilities vary dramatically between different software providers, and the capabilities a finance or procurement organization will require to support the automation of AP processes also vary materially, based not only on company size but a broad range of other factors. These include organizational complexity, invoice capturing requirements (e.g., paper, PDF, electronic, etc.), systems complexity, systems integration, industry, EDI integration/support, payment/financing capabilities, treasury integration/working capital management, geography and compliance requirements — to name just a few.

To understand how different providers stack up against these (and other) categories of requirements, the quarterly Invoice-to-Pay SolutionMap Insider report can provide significant insight. And to create a one-to-one map between business requirements for AP automation and vendor functionality capability, SolutionMap Accelerator can dramatically speed up the vendor shortlisting and selection process, even allowing companies to “skip the RFI” entirely.

This series defines AP automation requirements from a functional perspective to put AP, finance and purchasing professionals in the driver’s seat when they evaluate the available supply market for AP automation to fit their needs (either on a standalone basis or as a specific component of broader invoice-to-pay, procure-to-pay or source-to-pay solutions). Click to see our SolutionMap rankings of vendors in each category.

Part 1 of this series investigated core invoicing requirements for AP automation and some of the criteria that Global 2000 and middle market organizations should consider when selecting solutions (i.e., invoicing set-up, paper scan/capture support and e-invoicing).

In Part 2, we turned our attention to an additional set of AP automation functional requirements, including AP process, invoicing validations, workflow, collaboration and integration requirements.

In Part 3, we looked at the final set of AP automation topics: invoicing mobility, invoicing compliance and invoicing analytics.

In Part 4, we examined AP automation functions related to payment systems and methods, payment partnerships, payment processing and payment analytics.

Now, let’s look at payment options and early payment financing.

LIBOR Phase Out: Considerations for Supply Chain Finance

future

LIBOR has been the default benchmark interest rate for supply chain finance since this technique was developed approximately 20 years ago. By year-end 2021, LIBOR will be phased out.

So how does this impact supply chain finance? For a market that is approaching $500 billion globally in size, it’s a significant challenge.

20 Tips to Maximize Private Equity, Investment and Strategic Buyer Outcomes (Part 3: Before the Process — Third-Party Validated Analysis and the Importance of Understanding the Strategic Buyer Landscape) [PRO]

Aside from companies already owned by private equity firms, it is the rare solution provider — or any company — that is selling to private equity, going out for a later investment round or seeking a strategic buyer that has prepared adequately for the transaction process in such a way that the efforts will fully maximize the valuation, terms and other factors in its favor. That is, unless it gets lucky, and to be fair, some folks get lucky!

As expert advisers — primarily to “buyers” — we’ve seen this phenomenon play out time-and-time again in the procurement solutions universe. But it doesn’t have to continue to be that way. This series is focused on leveling the playing field for more advanced sellers of all types, gained by sharing our lessons learned from over 20 years of involvement in transactions in the sector, and especially our work as advisers to private equity investors, nearly all of which are extremely methodical and rigorous in their deal screening and due diligence processes.

So far in this Spend Matters Nexus series, we covered the initial seven tips to prepare — ideally far in advance — of the process itself (see Part 1 and Part 2). Today we continue with the next two tips to pay particular attention to in the lead-up to a process (but still ideally before it begins). And later in the series, we will explore tips to leverage in the actual process itself, ideally once you’ve fully prepared ahead of time to maximize your chances of an optimal exit, transaction or investment.

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).

Coupa financial results: Delving into another strong quarter [PRO]

procurement

Earlier this week, Coupa reported its Q2 results for fiscal 2020, achieving revenue of over $95 million (a near 55% increase year-over-year, primarily from organic growth). The quarterly revenue performance beat analysts’ estimates, and non-GAAP EPS was also above expectations, although cash flow from operating activities declined quarter-over-quarter. Regardless, investors cheered the results, helping Coupa hit a price/sales ratio of nearly 28X in early morning trading on Thursday — and a roughly $9 billion market cap (representing over 125% appreciation in the stock price in 2019 alone).

That’s valuation perfection by just about any measure when compared to peers.

But what is happening within Coupa (and the broader market) under the surface that is driving these numbers? This Spend Matters Nexus brief provides insight on broader (and related) market trends while peeling back a few layers of the onion on what’s driving Coupa’s success, including how it is benefiting from various competitive dynamics in the market (e.g., SAP Ariba’s broader integration hurdles), as well as some of the challenges Coupa must confront to fully capitalize on its acquisitions.

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).

What Happens When Machine Learning Finance Models Fail

These are some strange times. Look, we have $16 trillion of negative yielding bonds, that’s T, for trillion. I’m asked by non-financial people why anyone would want to buy negative yields (you pay to hold them, btw) and I reply, it’s not about income, it’s about trading that rates will fall further.

Which got me thinking: If we are in some liquidity trap world and negative interest rate environment, what does that do to all these invoice financial models being built using the latest and greatest in artificial intelligence and machine learning?

20 Tips to Maximize Private Equity, Investment and Strategic Buyer Outcomes (Part 2: Before the Process — TAM and Scenario Planning) [PRO]

Many solution providers’ executive teams that we have observed are not as prepared to enhance their chances of optimal private equity, investment and M&A outcomes. This Spend Matters Nexus series provides insight from the thousands of hours we have spent 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 the first installment of the series, we provided five recommendations to prepare wisely for an eventual process.

Today, we continue the analysis with our next tips to consider as the actual process approaches (i.e., “pre-process” tips). These include instructive recommendations on taking the time to build a total addressable market (TAM) model and scenario planning/rehearsing the actual process itself, including how to prepare and interrogate a “data room.”

Later in the series, we will explore the 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).

20 Tips to Maximize Private Equity, Investment and Strategic Buyer Outcomes (Part 1: Preparing Wisely) [PRO]

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).

Proactis in Play: Arbitrage and Analysis [PRO]

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.

Large Companies Lack Cash to Fund Their Supply Chains

procurement

David Gustin is the chief strategy officer for The Interface Financial Group responsible for digital supply chain finance and is a contributing author to Trade Financing Matters.

The popular opinion has been that many large American companies are flush with cash. In fact, surveys from some reputable institutions support this view. The AFP’s corporate cash survey found during the second quarter of 2019, U.S. businesses continued to build their cash and short-term investment holdings. This is intuitively supported by events like the corporate tax cut last year.

But this narrative is highly misleading.