Procurement Financials Content

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.

10 Reasons for Procurement to Work With Payments (Part 3) [Plus+]

early pay

Closing the payment gap – not just the invoicing gap – remains a Holy Grail for procurement organizations looking for greater oversight and control in transactional purchasing and even supplier relationship management. It’s also a means to bring finance and procurement organizations closer together – and to prove that finance is really procurement’s ally in the struggle to wrestle the maximum amount of utility out of P2P programs together, rather than separately. As my colleague Pierre Mitchell has noted, “any land grab is usually about job security built upon the pillar of bureaucracy.” In other words, finance and procurement must really be in the payables thing together.

The 10 reasons for procurement to work with finance departments are:

1. The value of control and oversight of the end-to-end transaction with suppliers
2. Building greater invoice/transaction insight that can bridge the visibility gap in getting line-level detail to supplier invoices without having to request information from suppliers
3. Being able to quantify efficiency driven metrics through a Trojan Horse adoption approach to e-invoicing
4. Reducing supplier risk
5. Capturing savings/leakage through closing the transaction, invoice and payment loop
6. Not getting taken advantage of by vendors that hide the total cost of P2P implementations by masking the amount suppliers are charged
7. Flexibility on supplier engagement/fee assumption in the case of supplier network models
8. New securitization/capitalization opportunities (e.g., securitizing the discount of forward payables through converting the discount classification to revenue)
9. Effectively addressing payables also forces addressing the “payment clock” question as early as possible to capitalize on opportunities.
10. Create powerful “information exhaust” around the optimal means of engaging with suppliers on a total cost basis – beyond just reducing risk. This not only includes capturing additional discount opportunities through payment integration, but also understanding how and when suppliers (and different groups of suppliers) are taking advantage of different payables opportunities.

The Fallacy of Non-Recourse Invoice Finance

In life it is important to distinguish between marketing and reality. When it comes to invoice finance, one marketing myth that has persisted is that non-recourse invoice finance shifts payment risk from seller to funder. Unfortunately, non-recourse factoring is one of the most misunderstood subjects in commercial lending. As a result, companies undertaking some form of invoice finance, receivable finance or factoring tend to have the wrong expectation about this product, potentially incurring unnecessary costs and not truly understanding the credit-risk relationship.

Icertis becomes first true CLM unicorn, with $115M funding round — and it sits atop a market that’s red hot and ripe for M&A [PRO]

Global Risk Management Solutions (GRMS)

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.

We call this concept “commercial value management” (CVM), and we discussed its framework in a recent Spend Matters PRO research paper titled “Commercial Value Management: Making Contracts the Commercial Core of Enterprise Value (Part 1).” In it, we stated:

“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

OK, let’s get to it …