Daily Archives: June 9, 2017

Bigger. Badder. Baffling.

As per our previous posts, the merger and acquisition cycle is peaking. Coupa went on a spending spree and bought Spend 360 and Trade Extensions. Jaggaer merged with Pool4Tool. OpenText is acquiring Covisint Corporation. And Descarte Systems acquired PCSTrac Business. And we just know more announcements are coming.

Everyone is getting bigger and badder, at the expense of BoB (whose days appear numbered), and it’s getting a bit baffling. Some of the acquisitions make a lot of sense (at least on paper) with companies trying to flesh out suites, but some like Open Text’s acquisition of Covisint (which is very vertically focussed on automotive) are stretching a bit. But what’s most baffling with the rapid pace of acquisitions are how the companies are going to manage integrations (of platform and strategy) and solution footprint.

When you get big, things can get costly … quick, especially if there are multiple platforms involved. This isn’t good for you from a market perspective (as the size of the customer base that can afford your baseline solutions will shrink), and it isn’t good from an operations perspective. There’s a reason that Oracle expected to save a Billion in operating costs by acquiring Sun, and a lot of it came down to platform. Sun Microsystems was very efficient in its software infrastructure, running almost 1,000 different systems whereas Oracle, which ate its own “one instance dog-food”, ran one Oracle instance. By migrating all of Sun’s systems into one, it saves hundreds of million a year (at least 250 to 300 by some counts, more by others). If a company has six different platforms to maintain, that’s six different hardware infrastructure costs, six different software infrastructure costs, six different dedicated support team costs, six different implementation expert team (who will implement and train third parties) costs, and so on. These costs add up. Rapidly.

And they escalate the platform costs that the companies need to charge to customers, which shrinks the perspective customer base. And if the mid-market gets squeezed out, everybody hurts as the greatest number of companies without decent Supply Management solutions (and the bulk of the 40% who don’t have solutions) are in the mid-market. So while acquisition makes sense to fill a hole, not working on ways to integrate, or at least harmonize, the solution (so that there is no duplicate development across products or unnecessary, and costly, integration efforts) can be costly. So, in some sense, the speed at which some companies are moving is a bit baffling, as good integration takes good analysis, planning, and development — all of which takes time. Given that some acquisitions are being completed in two months, and that the amount of information that can be extracted in due diligence is limited, there’s no way the average company can begin integration out of the gate. In many cases, the acquiring company (that are experts in a different technology and business process) won’t even know where to start.

In other words, while some companies might be on the right track, they are just beginning a very long journey and have thousands of miles to go before they reach their destinations. Adding acquisitions adds miles to the track — miles that have to be travelled. The question now is not do they have the vision, but how will they get there. And that can be a baffling question for anyone to answer (especially without third party expertise and guidance). But not necessarily unresolvable …

In the interim, Spend Matters has been putting together decent guides on questions to ask your providers if they were involved in one of the covered acquisitions. Check them out. And answer the questions for yourself before committing.