What does it mean for your company’s future if your choice of software provider gets acquired? Three GEP experts look at the implications and ways to minimize such risks.
December 22, 2022 | Procurement Strategy
The procurement and supply chain software provider market is in a state of churn these days amid mergers and acquisitions, consolidations and buyouts.
Recently, a major player in this dynamic market announced a takeover by a private equity firm.
What does this mean for your business’ future if your choice of software provider gets acquired? And when vendors are chasing shareholder value or trying to reduce operating losses, how does that impact the returns on the investment you made by choosing that provider?
To explore these quandaries and discuss the solutions to minimize such vendor risks, GEP’s senior director of engagement Paul Blake got together with product marketing directors Raj Aggarwal and Alex Zhong for a GEP Insights podcast.
Here are some important questions and answers from the conversation (edited for clarity).
Paul Blake: What is driving the consolidation and why are we seeing so many aggregations of point solutions under the umbrella of ownership?
Raj Aggarwal: Companies have been scrambling to make sure they achieve fast growth, gain market share and stay ahead of competition in this evolving space. It's tough with all the external and internal forces providers face today.
The procurement software industry will continue to see consolidation among providers that scramble to better position themselves rather than going alone. The landscape will change dramatically in the next one to two years.
Paul: The world of supply chain is also seeing M&As. Are they being driven by similar dynamics? What’s the theme dominating that software market?
Alex Zhong: I see these mergers and acquisitions as convergence, and this reflects the ultimate supply chain goal — the orchestration of the entire supply chain.
That’s why when you see companies in different function areas coming together via mergers and acquisitions , it reflects that kind of convergence.
But it can also indicate that companies are seeking quick financial outcomes.
So, I won't say all mergers and acquisitions are beneficial in the long run. In many cases, they reflect the dynamics of supply chain.
Multi-enterprise collaboration is another major trend whereby multi-enterprise networks are being formed. And obviously, the ecosystem is the keyword of these networks — ecosystem collaboration and partnership. Multi-dimensional collaborations are also being formed, not just in cost savings but also in risk management, sustainability and resiliency building.
I also see mergers and acquisitions happening between procurement (source-to-contract ) and supply chain. For a long time, there were gaps between the two.
So, true orchestration of the supply chain covers not just logistics or the fulfillment part of supply chain but also the supply side, the sourcing side of supply chain.
Paul: What’s driving these acquisitions from a customer's perspective? How should an organization looking at the next step in its digital journey interpret the coming together of several point solutions into a suite?
Raj: There are many reasons for these types of acquisitions but the one that's really important is the overall product strategy. And the reason it is so important is because you could be trying to fill a gap or create differentiation. But the key is simple — focusing on value creation for customers.
According to analysts, customer-centric companies typically weather ups and downs of market cycles. And over time, strong customer loyalty is achieved through strong technology and stability.
But when a company takes control of another company, the focus shifts to profitability, cost, rationalization and streamlined offerings and how the new entity can operate best versus being squarely focused on the customer.
So, the ability of the customer to understand what's being offered and what might change is clouded by confusion and instability. It doesn't give them a really good feeling. It poses additional risk. And with everything else going on in the world today, I don't think they want any more risk.
But if they have to make a strategic decision on what they should do, they need to be very focused on the success of their company and what a procurement software vendor can provide them relative to that.
Paul: One thing we believe strongly in is that cohesion and universal visibility and control that a suite provides comes from unification at the data level. That is something that is difficult to achieve by a vendor that has gathered a set of codes and applications written at different times by different teams and trying to build that into a cohesive whole. That's the dichotomy we see in the market today.
Alex: The key here is the capabilities vendors are providing to customers and how these actually enable business not only in the short term but also in the long term. I feel some of these mergers and acquisitions are focusing more on financial play versus providing solid, long-term capabilities.
Supply chain orchestration is very important and in today's dynamic environment, you want different parts of the supply chain coming together to collaborate. And so naturally, you would just pick and choose different functions and put them together.
And you say you have an integrated function.
But is that so?
We need to look at whether this integration is done by merger and acquisition or done by organic growth.
Under the hood, are the capabilities truly integrated, or have just been quickly put together to look nice on the surface. This is a very important perspective buyers need to consider.
To learn more about the upheavals in the procurement solutions provider market, listen to the full podcast Navigating Uncertainty: What To Anticipate (and Do) Post Your Procurement Software Vendor’s Acquisition now.