Procurement Strategy - Premium Content

The Impact of COVID-19 on M&A and Procurement Technology Investing (Part 1: Introduction)

I’ve decided to open up new Spend Matters Nexus columns and research briefs for everyone, not just subscribers, in the next few weeks, as we’re all certainly in a crisis period with the COVID-19 outbreak. To help make my coverage of investing and M&A more digestible, these dispatches will be shorter than usual (some will include frameworks and charts, others will not).

Having worked through two major shocks and downturns — the B2B.com implosion in 2001-02, the 2008-09 recession — I’m seeing both similarities and differences between those times and the coronavirus fallout today in the procurement, finance and supply chain technology worlds. But for different types of investing, asset classes and M&A activities, it’s clear the effects are already quite individualized.

Today, I’ll start with a summary perspective on what entrepreneurs, CEOs and business owners should expect for the next few months, based on transaction type. Please note: This column is not based on extensive primary research and survey data, but rather anecdotal evidence from what I’m seeing in the market, primarily as an advisor to sponsors and executive teams, but also as an angel investor and advisor myself.

Jason Busch is Managing Partner of Azul Partners’ Investor Advisory Group. He works with sponsors, CEOs and boards on data-driven due diligence, M&A and strategy. Jason is also the lead author of Spend Matters Nexus, a private newsletter and subscription service.

How does McKinsey’s acquisition of Orpheus affect Sievo and the spend analytics solution landscape? (Part 1: Background)

I’ve long been a fan of the spend analytics firm Sievo (going back to when my friend Fabrice Saporito was helping drive its commercialization as CEO in the formative years). But in a world where procurement and spend analytics technology ages fast, constant investment in R&D to drive solution improvement is key. You’ll need to read SolutionMap Insider (Analytics) and Spend Matters PRO (see our recent Vendor Snapshot of Sievo: Part 1, Part 2 and Part 3) to see how Sievo stacks up today, product wise.

But more important from where I sit today on the strategy and transaction side of the house (vs. the product one — I’ll leave that analysis entirely to the Spend Matters analyst team), is how McKinsey’s acquisition of Orpheus moves around the chess pieces on the partner and M&A board in terms of Sievo and its peers (Sievo, prior to the Orpheus acquisition, had a partnership with McKinsey). Does the deal help or hurt Sievo’s stock, so to speak?

In this two-part Nexus analysis, I’ll offer a perspective on this, starting with a look at Sievo (by the numbers including estimated revenue, customers, etc.) and what makes it attractive for partners and potential suitors.



But more important than what this means for Sievo as a potential strategic partner for others, alone, is what it means for all the other vendors, consultants, managed services and BPO firms in the market looking to build, OEM or acquire the right procurement, finance and spend analytics capabilities for their needs now that Orpheus has been taken off the chessboard. I’ll also explore this topic as well in this Nexus analysis.

Let’s dive in.

Jason Busch is Managing Partner of Azul Partners’ Investor Advisory Group. He works with sponsors, CEOs and boards on data-driven due diligence, M&A and strategy. Jason is also the lead author of Spend Matters Nexus, a private newsletter and subscription service that publishes 50+ times per year. Spend Matters and Spend Matters Nexus are owned by Azul Partners. His investment disclosures and other activities can be found on LinkedIn.

2020 Procurement Predicaments and Predictions — Gaps and a Mega Prediction (Series Wrap-Up Part 3) [PRO]

In this last installment of Spend Matters’ 2020 predictions wrap-up series, we’ll dive into some additional predicament areas where there are substantive gaps to address within the digital procurement market. We’ll also explore a “mega prediction” related to digital platforms (not applications) and how this digital land grab will have an impact on picking an optimal digital platform strategy for procurement. Click here for Part 1 and Part 2 of the wrap-up series.

2020 Procurement Predicaments and Predictions — The Big Picture (Series Wrap-Up Part 2) [PRO]

In Part 1 of this finale for our 2020 “Predicaments and Predictions” series, we summarized the problems and our outlook for various procurement areas, such as: Sourcing, Supplier Management, Contract Lifecycle Management, Procure-to-Pay, Contingent Workforce/Services Procurement, and Analytics.

In this installment, we’ll address a broader and overarching predicament that affects all of these areas, namely:

How can procurement organizations meet short-term S2P automation needs (via current-generation S2P apps), but support broader enterprise digital transformation requirements that are better suited to next-generation digital platforms (and underlying platform elements) that progressive CIOs and chief digital officers are beginning to adopt?

Remember that while developing our 2020 predictions, we had a guiding principle that our predictions would be grounded in practitioner predicaments that needed solving, which in turn would generally drive the solution/service provider market (unless there was no money to be made in that area — which we’ll touch on later).

In terms of practitioner requirements, the following predicaments/pain points continue to plague most procurement organizations:

* Gaining timely and accurate insights into spending, contracts, costs, suppliers and markets
* Engaging stakeholders early and deeply to help them get more value from their spend and suppliers — and adopting their best practices and tools
* Demonstrating procurement value beyond purchased cost reductions on a continual process (i.e., the impossibility of “saving yourself to zero”) — and beyond the usual sourcing processes that help drive them
* Helping protect the enterprise from supply risks in the value chain
* Aligning with functional stakeholders like Finance, IT, HR, Sales/Marketing, Legal, GRC, and other groups to not just help them manage their spend, but also support their broader initiatives and also align with them on capabilities (and tools) beyond the buy-side involving contract management, working capital, budgeting, risk management, Lean/Six Sigma, innovation, “variabilization” (e.g., using a contingent workforce and service providers), etc. And these programs might also sit in a Center of Excellence and/or Shared Services organization.

Obviously, the first three items are squarely in the wheelhouse of S2P applications, but as the net widens toward supporting broader enterprise requirements, procurement organizations are less digitally savvy. So, we’ll highlight how those emerging requirements are creating gaps, how organizations are responding, and where the market is moving.

Omnia acquires InsightGPO: Putting M&A at the center of a growth strategy

This week, Omnia Partners announced it was acquiring InsightGPO, the group purchasing organization arm of Insight Sourcing Group. According to the announcement, the transaction closed on Dec. 31, 2019. Prior to the definitive agreement, “InsightGPO was one of five divisions of Insight Sourcing Group,” which provided its “clients with highly targeted offerings for office supplies, auto rental, MRO and office equipment,” according to the press release announcing the deal.

Yesterday, I had the chance to speak to Tom Beaty, CEO, Insight Sourcing Group, and M. Todd Abner, President and CEO of Omnia Partners, to learn more about the transaction.

This Spend Matters Nexus brief shares a bit of what was learned (Omnia facts, figures) along with our own transaction analysis and a back-of-the-napkin valuation and relative multiples in the GPO market. It also traces the history of Omnia and provides a perspective on the GPO today (at an investor level) and future scenarios. We will follow up this Nexus M&A analysis with a detailed vendor snapshot/overview of Omnia on Spend Matters PRO this quarter, including a full SWOT, customer recommendations, etc.

For those interested in learning the basics of GPOs and how to use them as part of a category management portfolio strategy, we suggest you start with our past coverage and a chart showing the primary GPO market segments:

● An Introduction to Group Purchasing Organizations (GPOs)
● Group Purchasing Organizations: Supplier Perspectives and the Evolving GPO Landscape
● All We Are “Saved” — Give Purchasing Consortia (Including GPOs) a Chance
● The Healthcare Group Purchasing Organization (GPO) Landscape: Background, History and Introduction



Jason Busch is Managing Partner of Azul Partners’ Investor Advisory Group. He works with sponsors, CEOs and boards on data-driven due diligence, M&A and strategy. Jason is also the lead author of Spend Matters Nexus, a private newsletter and subscription service that publishes 50+ times per year. Spend Matters and Spend Matters Nexus are owned by Azul Partners. His investment disclosures and other activities can be found on LinkedIn.

How to Make Your Procurement Organization like Amazon — Use the Flywheel! [PRO]

Many smart readers will be familiar with the Amazon flywheel. It is a graphical representation of Amazon’s business model that you can read about on this blogpost here.

The model from that post is shown below:



Source: http://www.samseely.com/blog/2016/5/2/the-amazon-flywheel-part-1

The graphic generally shows the self-reinforcing cycles of how Amazon’s focus on customer experience and product selection help drive demand — which in turn attract sellers while also then letting Amazon gain economies of scale (and also “economies of scope” when it jumps into adjacent markets) to then self-fund (i.e., re-invest all the profits) the offering of lower pricing AND the development of even better customer experiences … which then repeats the cycle continuously.

This graphical model is an oversimplification because there other things at play here:
* disintermediation in the supply chain to capture value
* building/buying capabilities to jump into adjacent markets
* driving not just experience and eyeballs, but also monopolistic power in categories
* acquisitions to accelerate category dominance
* subscription-based bundling and related incentives (“free” shipping with Amazon Prime)
* playing 3D chess by playing different roles — e-tailer, wholesaler, marketplace, platform — and then using that power with upstream suppliers
* speed to value and focused/driven/intense organizational culture on mission and results

I’m sure you could add more to the list above. That said, procurement and supply chain professionals understand many of these drivers when they look at supplier power and category strategy — especially when one of those suppliers may be Amazon (e.g., AWS)!

Many procurement organizations often have a difficult time expressing their organizational value-add to other stakeholders, or they end up focusing too narrowly just on cost savings. They need to be able to communicate higher impact value creation and also create some “branding” surrounding their spend/supply management services. So, they should consider adopting the Amazon flywheel to their organizations, and there are actually three ways in which they can do this:

* Apply the Amazon flywheel to the broader organization and then dovetail in how procurement helps to support the business flywheel. Most organizations want to be like Amazon in some respects, so this can help reinforce that.
* Apply the flywheel to the procurement organization as a spend/supply management “business” in its own right and then tweak the Amazon flywheel model to create a self-funding procurement flywheel.
* Apply the flywheel to sourcing, category management and supplier management as you engage suppliers.

In other words, change “growth” to “profitable growth” and then change “sellers” to “suppliers” and you get the general idea.

In the rest of this Spend Matters PRO research brief, we’ll share our adaptation of the Amazon flywheel to a “procurement flywheel” that procurement organizations (and to the digital solution/service providers who help support them) can adopt for themselves and their stakeholders.

For any qualified practitioners interested in this PRO content, please feel free to reach out to us and we can make it available to you if you’re looking for support in your digital transformation.

2020 M&A and Procurement Investment Predictions: 10 Trends to Watch (Part 2)

procurement

M&A and investor interest in the procurement technology sector is at an all-time high. Of course it also helps that there are more than 1,000 providers in the procurement solutions market (software, consulting, outsourcing, managed services, market intelligence, etc.) and adjacent markets than ever before — and new start-ups popping up on what feels like a weekly basis.

In the first installment of this series, we covered the first three sector M&A and investments trends that we’re paying attention to in 2020. These are competition growing between strategic and financial buyers; ERP and big tech getting more active in the sector; and buyers/investors expanding their definition of procurement technology.

Today, we turn our attention to our next two trends. These are:

Trend 4: Convergence of sourcing, category and market intelligence solutions: blurring the lines (i.e., application/technology, services, content/intelligence, etc.)

Trend 5: Payments, accounts payable and procurement intersections accelerate

2020 Predictions for Strategic Sourcing: Continuous Analysis Needed for Category Management [PRO]

In today’s Spend Matters post about predicaments in strategic sourcing, we talked about the missing support of category management in existing e-sourcing solutions. The result of this is a lack of connection between the category management strategy and the tactical execution of sourcing events, which leads to a fragmented execution of the overall sourcing and procurement strategy.

To truly transform procurement you need to start from the top by defining your category management framework, then create the actual category strategies based in this framework and finally cascade this down into sourcing events as applicable. This is obviously doable without having a system to support it, but then, in my experience, you run a significant risk of creating category strategies once a year that you then put away and don’t look at until next year when it’s time for an update. By using a tool that has contract data, spend data and supplier management data (natively or through integration), you could create a dashboard that would support the continuous analysis of trends, risk, demands or supply changes. The defined strategy should also guide you to the right type of sourcing event with the right category-specific features and configuration.

Creating this type of solution is obviously not easy, especially the category strategy part, but we are seeing some interesting developments in the market and hearing some interesting things from vendors, and linking e-sourcing to category management is the next logical step in the evolution of sourcing technology.

In this Spend Matters PRO brief, we’ll look at a number of developments about how we believe this will play out.

Invoice-to-Pay Tech Selection and the ‘CIO Friendly’ Persona: Analysis & Commentary [PRO]

The market for invoice-to-pay solutions, much like e-procurement, has grown in size and relevance to procurement organizations in recent years. We even expect the I2P market will begin to rival the EDI-based world in the 2020s, eventually overtaking it.

Despite this rapid growth, the total number of providers in this space will likely remain relatively small. As leading I2P solutions continue to grow their supplier networks, their increased clout, based on their ability to connect more and more buyers and suppliers, will impede new providers from breaking into the larger I2P market.

Yet competition will come from other fronts.

Procure-to-pay solution vendors, for example, have begun to invest significantly in developing the I2P half of their suites, rounding out transactional shopping/ordering capabilities with functionality for invoice processing and, in some cases, basic payments support. This could create competitive pressure on I2P specialists in tech selection scenarios where access to end-to-end P2P capabilities are an important criterion.

Similarly, AP automation solutions are taking a bite out of a different customer base altogether: the long underserved middle market. Small and medium-size businesses are increasingly seeing benefits to adopting software that automate invoice receipt, capture and validation processes (sometimes inclusive of payments execution), yet these customers also seem to be satisfied with an 80%, “good enough” solution in terms of functionality. This creates a new competitive dynamic for I2P solutions looking to move down market, as decisive tech selection criteria may revolve more around usability and collaboration features than supplier network breadth.

Given these different competitive fronts and the evolving needs of this market, how can companies with different technology requirements evaluate invoice-to-pay solutions amid an array of vendors with varying degrees and kinds of capabilities?

Spend Matters’ SolutionMap accounts for these differences using a persona-based approach. Each SolutionMap persona is calibrated to weight evaluation requirements so that it reflects the profile of certain kinds of buyers. For example, the “Nimble” persona reflects small and medium-size businesses that prioritize fast time-to-value and ease of use in the selections; the “CIO Friendly” persona emphasizes technical foundation and interoperability with other enterprise systems to make for a straightforward implementation.

So, what do SolutionMap personas look at in the Invoice-to-Pay rankings, and how can they help your organization make better technology decisions?

In this Spend Matters PRO series, we’ll analyze the invoice-to-pay market using our five I2P personas: Nimble, Deep, Turn-Key, Configurator and CIO Friendly. (See persona definitions* below.)

This review is organized just like our RFI for SolutionMap, according to these topics: platform capabilities, services, features & functionalities, and customer value.

Let’s look at the invoice-to-pay features and vendors as viewed the CIO-Friendly persona.

2020 Predicaments and Predictions in Procure-to-Pay: Issues with E-Procurement, Invoice-to-Pay and AP Automation [PRO]

(Editor’s note: Spend Matters’ analysts are taking on the new year by looking at their areas of procurement technology to see what’s broken and what can and should be fixed this year. Here, analyst Xavier Olivera lays out the predicaments faced in the procure-to-pay sector. And for our PRO subscribers, this post also offers his predictions for 2020.)

The market for procure-to-pay (P2P) solutions — including its submarkets for e-procurement, invoice-to-pay and AP automation solutions — came a long way in the 2010s.

For e-procurement providers, we saw a strong focus on improving the overall user experience of their tools; a push to help organizations increase their percentage of spend under management; new approaches to identifying and eliminating maverick spending; and increased availability of intelligent analytics that can recommend strategies and action items that lead to better purchasing decisions.

Invoice-to-pay providers, for their part, didn’t sit still either. In fact, many solutions in the I2P and AP automation sectors evolved to better digitize and automate processes around invoice capture, validation and approval — primarily through the application of AI and machine learning to their tools.

That doesn’t mean there aren’t still problems, of course. So as we start 2020, we wanted to take a step back and look at two persistent predicaments in the P2P space that procurement organizations and their technology providers are facing:

* In e-procurement, there’s one problem in particular that will continue to plague vendors over time, requiring new capabilities and creativity to solve it: the need for procurement organizations to generate new savings year after year, especially when savings tend be viewed as related to sourcing while P2P is viewed as more transactional and focused more on efficiency savings.
* In I2P/AP automation, the real challenge is to support the broader organization's goal of improving cash flow and optimizing working capital while balancing the needs of suppliers, who want to be paid as soon as possible. Balancing these goals requires improvements in the current P2P solutions capabilities, such as by incorporating functionality for payment processing, supply chain financing, and the ability to move money worldwide at a lower cost (especially in cross-border payments).

We consider these two challenges critical not just for procurement transformation but also for supporting value creation across the whole business. So now that we are entering 2020, this Spend Matters PRO also offers some predictions in regards to these challenges for what we believe P2P providers will do this year — or at least we wish they would. Issues include the need for total costs to be calculated in e-procurement, and for better P2P answers to working capital, financing and payments.

2020 Predictions for Contract Management: Where the CLM Market Is Going This Year and This Decade [PRO]

contract

Contract management technology is stuck between a rock and a hard place. At its full potential, CLM solutions promise the ability to plan and orchestrate the fundamental instruments of enterprise value creation — that is, an organization’s contracts — yet their current adoption and use within businesses (beyond their current role of legal risk transfer documents) is less robust than one might expect (see today’s post “2020 Predicaments in Contract Management: Poor Adoption, CLM Market Fragmentation and Limited Imagination”).

No one is fully to blame for this historical lackluster state of affairs regarding contract management transformation, but things are starting to change. 2019 has actually been an extremely strong market based on market demand because:

* A combination of the money at stake that is currently buried within opaque legal language in contracts — and the commercial risks that continue to ramp up as global business conditions become more volatile.
* An increasing realization by practitioners of the value leakage that is occurring because of contracts that are not adequately managing commercial complexity and are not integrated with execution systems.
* Since contracts are the lynchpin between sourcing and both P2P and supplier management, CLM becomes a natural extension of these areas into the other. * The need to cure M&A hangovers and gain enterprise scale by getting visibility of contracts, standardizing them (and the contracting process), and tying them into all business processes that touch contracts (hint: the majority of all processes!).
* A desire to apply AI in an area where it can have substantial impact on process costs (i.e., internal/external counsel rates for contract review are not cheap) and process effectiveness where CLM is the perfect candidate.
* Vendor dynamics that have impacted re-looking at CLM solutions — e.g., IBM Emptoris exiting the market; broader suite-level selections that include CLM; ERP upgrades; and/or legal groups looking to be proactive in finding solutions that go beyond glorified document management.

On the provider side, there’s also been some key growth drivers related to private equity investments in best-of-breed CLM players like Icertis, SirionLabs, Agiloft, etc. and also numerous niche AI-centric start-ups. And S2P suites have made incremental improvement, but only insomuch as to keep up competitive parity, rather than deeply innovativing.

But there are, in our view, a few key problems among providers of CLM systems that, if fixed, would go a long way toward improving the contract management maturity of their customers. Some problems are readily addressable, and we think procurement and legal organizations will see progress on these issues within the next year. Others are much thornier, and while a potential solution is conceivable, vendors will likely take several years to get there — if not the rest of the decade. There will also potentially be some disruptive moves in application categories outside of core CLM, S2P, CRM, etc. that we actually see as very feasible.

In this Spend Matters PRO brief, we’ll examine three of the biggest impediments to CLM system success within procurement and legal organizations, as discussed in our other blog post today. We’ll then project potential scenarios that vendors could follow to help solve these problems, including some “predictions” for how the market could evolve in the next year and beyond.

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

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!