Xchanging acquires Marketmaker4 – further comments on a small but important acquisition

On Friday, Xchanging announced the acquisition of US eSourcing firm Marketmaker4 for $11M initially with a further $11M payable based on performance. We gave some initial coverage here, but let’s look into it a little deeper. (And another chance to feature our pic of Ironman competitor Ed Cross, Xchanging's procurement leader).

There’s a great article on our sister site, Spend Matters US, and my first recommendation is you read that for an excellent and pretty detailed overview. My US colleagues know the Market Maker product and firm far better than I do - their exposure and business this side of the Atlantic has been pretty limited.

But the solution clearly contains a sourcing capability (RFX, auctions etc) without getting into the top-end market-informed sourcing capability, but it also provides embedded category / market intelligence, unusual, maybe unique for a sourcing tool. It also features a dashboard / cockpit approach to give the procurement user visibility of the sourcing events and category info with what seems to be an attractive and useful interface. (See pics on the US site).

As Jason Busch says on Spend Matters US, this is not a case of Xchanging buying some US customers, although they would undoubtedly be delighted to convert some of Marketmaker's customers, as up to now Xchanging have been stronger in Europe than the US in their outsourcing business.

“While MM4’s relationships will no doubt open doors – our own reference checks confirm that customers are generally very enthusiastic and satisfied with the sourcing technology upstart – there is no guarantee that solid software customer relationships will translate to the successful up-selling of higher-end BPO services, which are often sold at two or three levels higher in a procurement or finance organization”.

Rather, this is about Xchanging developing offerings that blend pure outsourcing, staffing solutions (like short term expert assignments) or even pure software solutions.  Indeed, the boundaries between software, outsourcing and services are blurring, and we might argue that Xchanging are not only competing with Proxima, Procurian, GEP and Accenture, but also perhaps with firms like BravoSolution (who sell a significant volume  of services in some geographies).  Meanwhile, the consulting firms are looking at both outsourcing and software, and innovative “horizontal outsource” models provided by the likes of Smart Cube (featured here) offer yet more alternatives.

I suspect that Xchanging feel that having a range of software offerings can not only differentiate the firm, but of course also increase the credibility of the core outsourcing proposition.  We commented on this in the paper I wrote with Ed Cross of Xchanging earlier this year, where we featured their  impressive new project management / benefits tracking software, (“the Vault”) developed internally and mainly for use with outsourcing clients at the moment. But you could see that being offered separately from the services at some point.

From a financial point of view, Xchanging say that the acquisiton will be positive in terms of earnings and ratios - in fact,  it’s not a big transaction in terms of its overall impact on the Xchanging corporate numbers initially, reflected in a minimal share price movement since the announcement. But it could prove a bigger strategic development for Xchanging – and the procurement solutions market – over the next years. And the press comment was pretty good. The Times said of the shares - "Attractive long-term given the potential growth for the business."

(Declaration – Spend Matters UK/Europe has worked with Xchanging from time to time and I own a small number of Xchanging shares in my personal pension fund, which one day I hope will get back to their launch price...)

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