Tag

Acquisition

Appian’s Jidoka Acquisition Sets the Scene for the RPA Market in 2020 | Blog

By | Automation/RPA/AI, Blog

Appian announced its intent to acquire the Spanish vendor Novayre Solutions SL and its Jidoka RPA platform on January 7. With this acquisition, Appian, best known for its low-code process management and orchestration software, will be able to offer extensive automation capabilities natively, while it did so previously with partners’ software such as Blue Prism and UIPath.

So, what does the acquisition mean for the market?

Why the acquisition?

Our estimates show that the RPA third-party software market is expected to grow by 80 percent to reach $2.5 billion this year. With this phenomenal growth rate, it’s not surprising that non-RPA companies want a slice of the pie.

Appian has been active in this market for a while and has benefitted from many new clients thanks to its partnerships with RPA vendors. It is also a reseller for Blue Prism and has experienced growing demand for RPA first-hand through that channel.

In addition, technology giants are increasing their activities in this market. SAP acquired Contextor back in 2018. And most recently, Microsoft announced UI flows to add RPA capabilities to Microsoft Power Automate (previously Microsoft Flow). It combines digital process automation (DPA) via APIs with UI-based automation. Pega is another competitor that has also invested in this market; it took over OpenSpan back in 2016.

Why Jidoka, and what about the partners?

We have assessed Jidoka as part of our RPA Technologies PEAK Matrix for a number of years and most recently positioned it as a major contender in our 2019 assessment. Jidoka is a Java-based platform where robots are designed and managed by a web-based console. There is a design studio for workflow and orchestration of robot operations. A console centralizes monitoring, audit, and exception handling features along with secure user permission and authorization capabilities. It has proprietary image recognition technology, Hawk Eye, to support Citrix automation. The platform offers capabilities such as auto-scaling of robots, a secure credentials vault, roles-based access controls, execution logs, audit trail, robot performance analytics, and ROI calculator. It also offers a chatbot capability that is available from the console. Real-time human-robot collaboration is provided via chat interface from the console (and Google Home,) the Jidoka mobile app (voice and chat,) and via IoT devices.

Appian intends to rebrand the product as Appian RPA. It will turn it into a low-code environment and integrate it with its own solutions to be offered on the cloud on a competitively priced subscription basis. While growing in Spain and Latin America, Jidoka has limited presence in other geographies. This is something that Appian can address with its presence in major tech markets.

As for its partnerships, Appian is keen to keep them going and offer clients choices. It remains to be seen how partners such as Blue Prism and UiPath will react to this news. It is not unusual for partners to go for co-opetition. For example, last year Blue Prism announced an Intelligent Document Processing (IDP) solution called Decipher, but has maintained its partnerships in the IDP segment, e.g., with Abbyy.

What does it mean for the market?

We have been expecting M&A activity in this sector to increase with market maturity and as RPA becomes a key tool for process efficiency and productivity. RPA is also commoditizing, and the fact that Appian is acquiring a very small vendor shows that entry into the market is not expensive. The news of this acquisition could encourage other tech companies, particularly those in the process management and orchestration space, to act too. There are many small RPA vendors with good offerings. The big RPA players with their current large valuations could suffer if a wave of acquisitions materialized and bypassed them; but at the same time, they have an awful lot of customers and a huge global footprint among them. Furthermore, private equity investors continue to invest in the market, as evidenced by Automation Anywhere’s last round of funding. This market remains buoyant and dynamic.

With Microsoft getting into the RPA business, all vendors have to up their game to remain competitive.  As for the RPA scale challenge that many enterprises are facing, vendors are working on this with new, improved offerings in the areas of robot management and controls, ease of use, and increased robot resiliency. With its existing and new capabilities, Appian will be well placed to address the scale challenge to make RPA adoption and operations smoother and, in so doing, edge ahead of the competition.

HCL’s Sankalp Acquisition: Reflections of a Dynamic Industry

By | Blog, Mergers & Acquisitions, Uncategorized

In September, HCL Technologies announced its acquisition of the semiconductor engineering services firm Sankalp Semiconductor in an all-cash deal worth US$25 million, with Sankalp operating as a 100 percent subsidiary of HCL. While this is not a particularly large acquisition, it impacts a key market player, and it highlights a couple of key trends in the semiconductor engineering services market.

What the acquisition means for HCL

The acquisition impacts HCL in a few important ways:

Enhanced semiconductor engineering capabilities

The recent acquisition by HCL is a strategic move to cement its position in semiconductor chip engineering services by strengthening its existing digital design services and expanding into the analog and mixed-signal space.

Both HCL and Sankalp Semiconductor provide chip engineering services in the pre-silicon and post-silicon segments of the value chain (See Figure 1). But while HCL’s chip engineering expertise lies in digital design, Sankalp has strong capabilities in analog and mixed-signal circuit design as well.

And HCL will be gaining experience. Sankalp has more than 5,000 person-years of experience in semiconductor engineering services and covers the digital, analog, and mixed-signal domains through its 1,000+ engineers based in India and Canada. In analog and mixed-signal design alone, the company has more than 1,500 person-years of experience and has delivered more than 500 projects.

Increased revenue

Though HCL is a major player in engineering services, its acquisition of Sankalp Semiconductor, which reported revenues of ~US$20 million in FY2019, will be a nice boost to its semiconductor engineering services top line.

Increased market access

Sankalp will strengthen HCL’s play in specific market segments including automotive, consumer, IoT, medical electronics, networking, and wireless.

How the acquisition reflects industry trends

HCL’s acquisition of Sankalp is the latest in a series of acquisitions that have taken place in the semiconductor engineering services industry over the past few years. As shown in the graphic below, in 2015, Aricent acquired the Bengaluru-based semiconductor services firm SmartPlay Technologies Pvt Ltd before itself being acquired by Altran in 2017, which was – in turn – acquired by Capgemini in 2019. Cyient Europe Ltd acquired custom analog and mixed-signal circuits design company Ansem N.V, and L&TTS acquired Bengaluru-based Graphene Semiconductor.

All of these acquisitions reflect an important industry trend that has some specific consequences. There is an increasing focus on semiconductor engineering due to the rise of IoT and smart device applications, as well as a growing demand for greater computing power and device miniaturization.

This trend is driving several outcomes. First, it is forcing semiconductor companies to think about how to reduce time-to-market, as well as how to gain access to engineers with the right kinds of expertise. Many are turning to outsourcing to address these challenges. As a result, we expect outsourcing in this sector to grow at a rate of 10% over the next three years.

Second, it is forcing semiconductor engineering service providers to expand their portfolios to successfully address market needs. That challenge, coupled with the generally fragmented nature of the industry, is likely to result in ongoing merger and acquisition activity.

Ultimately, whether they choose to grow organically or inorganically, semiconductor engineering services firms will want to invest in their capabilities so they can grab a higher share of outsourcing from the ~US$ 470 billion semiconductor industry pie.

 

Capgemini-Altran Acquisition: Upping the Ante in Engineering Services | Blog

By | Blog, Mergers & Acquisitions

Back in December 2017, Altran’s acquisition of Aricent for US$2 billion was one of the biggest inorganic growth initiatives in the engineering services space. The acquisition helped Altran draw synergies across key verticals and strengthen its leadership position in the global engineering services space.

Fast forward just a short year and a half later to a much larger deal: Capgemini on June 24, 2019, announced its plan to acquire Altran for a cash consideration of ~US$4.1 billion and also assume Altran’s financial debt of ~US$1.6 billion, which is primarily attributable to its Aricent acquisition. The transaction is expected to close by the end of 2019.

Based on our calendar year 2018 estimates, the combined entity will hold over 10 percent of the global engineering services outsourcing market and will have nearly US$1.4 billion higher revenue than its nearest competitor.

Engineering Services revenue for leading service providers1 CY 2018; US$ billion

1 Includes Everest Group estimates

The acquisition reinforces the fact that the global services industry views engineering services as an avenue to offset the low headroom for growth in the IT and business process services. While players such as HCL Technologies and Tata Consultancy Services have primarily followed the organic route to drive growth in this space (both the companies have a spot in the list of global top 10 engineering services companies,) Capgemini has become the largest engineering services company with this mammoth acquisition.

The acquisition also highlights how service providers are increasingly reckoning with the need to develop capabilities to cater to the Information Technology – Operational Technology (IT-OT) integration needs of today’s connected world. An IT-OT play helps service providers demonstrate capabilities across multiple value elements and capture a larger share of enterprise spend.

What this acquisition means for Capgemini

Altran reported year-on-year growth of 27.1 percent for calendar year 2018, and its organic growth stood at 8 percent. Capgemini will certainly benefit from Altran’s robust portfolio growth. But it stands to gain more benefits:

  • Top spot in the engineering services industry: The combined entity will be the undisputed leader in engineering services, with over US$4 billion in engineering services revenue, and ~54,000 professionals
  • Enhanced capabilities across key verticals: With Altran’s stronghold in the automotive, aerospace, electronics & semiconductors, medical devices, and software products spaces, and Capgemini’s strength in sectors including manufacturing and energy and utilities, the combined entity will have a leadership position across the majority of engineering verticals
  • Asset and infrastructure dividend: Altran has developed numerous labs, solutions, innovation centers, etc., that will add rich depth and breadth to Capgemini’s capabilities
  • Enhanced value proposition: Capgemini will not only be able to cross-sell its enhanced IT-OT value proposition to Altran’s existing, top R&D-spend clients – including six of the top 10 Independent Software Vendors (ISVs) and all of the top five automotive Original Equipment Manufacturers (OEMs) –– but also to its own engineering-heavy verticals
  • Enhanced nearshore delivery capabilities: Altran has a sizeable delivery presence in Eastern Europe, which is a hub for high-quality engineering talent, and a significant delivery presence is viewed as a differentiator in the engineering services space
  • Access to Altran’s hand-picked portfolio of companies: Capgemini will be able to enhance its capabilities in niche areas including design and cyber security through Altran’s previous acquisitions of companies like Frog Design and Information Risk Management (IRM.)

What it means for Altran

In its mid-2018 “The High Road, Altran 2022” plan, Altran presented the key objectives it aimed to achieve by 2022:

  • Compound Annual Growth Rate (CAGR) of 6.5-7 percent (organic) during 2017-2022
  • 25,000 engineers in near/offshore locations, including India, up from 16,000 in 2018
  • Momentum in high-growth segments such as ISVs, electronics, automotive, and medical devices
  • Leadership in North America, while pursuing selective growth in the APAC region
  • Complete integration of Aricent by 2020

With Capgemini coming into the picture, the growth plan for Altran will likely be redefined. Nonetheless, assessing how Capgemini impacts the objectives Altran’s leadership laid down is still worthwhile.

While Altran has been managing steady growth on its own (8 percent year-over-year organic growth in calendar year 2018,) integration with Capgemini will help generate greater exposure to clients and accelerated market growth in North America. It will also accelerate Altran’s delivery expansion in offshore locations.

As a downside, Altran will be integrating with Capgemini – which could come into play as soon as early 2020 – while it continues to attain full synergy with Aricent. This multi-faceted integration will require meticulous planning and execution to ensure success. It may result in increased attrition among the talent Altran acquired from Aricent.

Cues for the broader engineering services outsourcing industry

This acquisition further enhances the dominance of Europe-headquartered firms on the leaderboard of the global engineering services industry. Further, once the acquisition is complete, Capgemini – as the largest engineering services provider – will have developed a sizeable offshore delivery presence and will be capable of going to market with an optimum combination of four key factors: capabilities, scale, client proximity, and cost-effectiveness. Offshore-heritage service providers will need to step up their game to continuously invest in building and enhancing capabilities for new and emerging areas.

We expect the inorganic growth wave to continue in this space. While it is unlikely that we will soon see another acquisition of this scale, we expect both large and mid-sized players to explore smaller acquisitions that address their unique objectives. While large service providers will flex their financial muscle to gain market share and niche capabilities, mid-sized service providers will look to build adjacent capabilities. And when this happens, both the providers and their clients will win.

Dassault Systèmes Acquires Medidata to Ride the Platform Wave in Life Sciences | Blog

By | Blog, Healthcare & Life Sciences, Mergers & Acquisitions

When news first hit in late April 2019 of speculation around Medidata Solutions being acquired by Dassault Systèmes – a France-based software company that develops 3D design, 3D digital mock-up, and product lifecycle management software – Medidata’s stock value went soaring. The deal immediately made sense. The fact that Dassault Systèmes was looking to ramp up its offerings for life sciences companies made Medidata, which we recently recognized as a Leader and Star Performer in our PEAK Matrix™ for Clinical Trials Products 2019, an attractive acquisition prospect.

 

Everest Group Life Sciences Clinical Trials Products PEAK Matrix Assessment 2019

 

Fast forward to June 2019 and the deal is done. The all-cash transaction is valued at US$5.8 billion and represents Dassault Systèmes’ largest acquisition to date. It will finance the deal with a €1 billion loan, a €3 billion bridge-to-loan facility, and available cash. It’s the first time the French company has resorted to external funding, which only accentuates how much it prizes Medidata as an asset.

The strategic intent behind the deal

Dassault Systèmes began focusing on the life sciences market a few years ago with the vision to improve the penetration of digital technologies in the industry. Its last life sciences-focused acquisition was that of Accelrys in 2014, which helped Dassault Systèmes establish BIOVIA, its brand for biological, chemical, and materials modeling and simulation, research, and open collaborative discovery.

With the acquisition of Medidata Solutions, Dassault Systèmes makes a statement that it is serious about achieving this vision. The acquisition will make life sciences Dassault Systèmes’ second largest industry focus, after transportation and mobility. Medidata grew at a CAGR of 17 percent during 2015-2018, driven by its dominance in electronic data capture through its flagship product, Rave.

Dassault Systèmes prides itself on its 3DEXPERIENCE platform, which is meant to enhance digital collaboration in complex sectors like aerospace, infrastructure, and mobility. Dassault Systèmes now looks to extend these benefits to life sciences. By adding Medidata’s clinical and commercial offerings to its own 3D experience expertise, Dassault Systèmes aims to create a platform that offers complete digital continuity to the life sciences industry, addressing complex challenges such as personalized medicine and patient-centric experiences.

Unpacking the companies’ synergies

Synergy area

Dassault Systèmes

Medidata Solutions

Value proposition

 

Design, modeling, and visualization software, with leading capabilities for the aerospace, defense, and consumer goods industries. Dassault Systèmes now aims to bolster its life sciences division

 

Life sciences clinical and commercial software pure-play, with deep domain expertise and strong consulting pedigree

Coverage of the life sciences value chain

 

Drug discovery, manufacturing, and supply chain Clinical and commercial operations

Key technology offerings

Design, modeling, simulation, and virtualization software Data capture, real world evidence, advanced analytics, AI-driven insights, and operations management

Customers

Customers are mostly in the aerospace, defense, and consumer goods industries

Sizable number of European life sciences clients, including medical devices firms such as Medtronic, FEops, Novo Nordisk, and Kavo Dental

1,300 life sciences companies, three quarters of which are in America. This includes most of the Big Pharma and CRO firms

Product coverage across the value chain

Product coverage across the value chain

Key opportunities

Dassault Systèmes is sitting on a lot of cash. This will give Medidata the financial muscle it needs to make the right investments in talent and technology to compete with the big players like Oracle Health Sciences and Accenture.

The integration of capabilities could lead to the creation of a unique end-to-end platform for life sciences across the entire value chain. Medidata has clinical and commercial capabilities, and Dassault Systèmes has offerings for drug discovery, manufacturing, and supply chain.

Potential risks

It’s not clear how the integration of Medidata’s products with the broader 3DEXPERIENCE platform will take place. It could be a challenge linking Medidata’s clinical trials and commercial operations solutions with Dassault Systèmes’ design and visualization offerings.

Dassault Systèmes’ has diversified offerings across several industries. In the long run, this may dilute Medidata’s brand image as a leader and focused player for clinical trials technology.

Closing thoughts

The life sciences industry needs aggressive digitalization to realize efficiency gains and reduce the lengthy timelines between drug conceptualization and drugs reaching the market. We’ve seen technology vendors coming up with integrated solutions for clinical trials to help enhance trial efficiency. While the need for a platform is evident, technical debt and change management issues hinder this platform-centric vision. This is a high growth market, which is likely to attract more interest in the coming 18-24 months. More SaaS companies will need to pivot to the platform conversation to scale and remain relevant. We will be tracking this space closely.

HCL Acquires IBM Products – Desperation or Aspiration? | Sherpas in Blue Shirts

By | Blog, Mergers & Acquisitions, Outsourcing

On December 6, 2018, HCL announced it had acquired seven IBM products across security, commerce, and marketing for a record US$1.8 billion. To provide a financial context to this acquisition: HCL, India’s third largest IT services provider, invested about 22 percent of its annual revenue to bolster its products and platforms portfolio – what it refers to as its Mode 3 portfolio – which barely contributes to 10 percent of its annual revenue.

Demystifying the Why

What strategic outcomes could HCL potentially derive from this deal?

  • Cross-sell opportunities: Access to the more than 5,000 enterprises currently using the acquired IBM products
  • Superior value proposition around as-a-service offerings: Integration of these products with HCL’s ADM, infrastructure, and digital services
  • Top-line growth due to recurring revenue streams and expanded EBIDTA margins
  • Fewer dependencies on external vendors: Improved capabilities to bundle internal IP with services can enable HCL to have greater control over outcomes, thereby enhancing its ability to deliver value at speed

 Sounds good…Right?

At first glance, the acquisition may seem to be a strategic fit for HCL. But when we dug deeper, we observed that while some of the IP plugs gaps in HCL’s portfolio, others don’t necessarily enhance the company’s overall capabilities.

HCL acquisitions

This analysis raises meaningful questions that indicate there are potential potholes that challenge its success:

  • Confusion around strategic choices: The product investments point to a strong proclivity towards IT modernization, rather than digital transformation. This acquisition of on-premise products comes at a time when inorganic investments by peers’ (recent examples include Infosys’ acquisition of Fluido and Cognizant’s acquisition of SaaSFocus) and enterprises’ preference are geared towards cloud-based products
  • Capability to drive innovation at speed on the tool stack: To address the digital needs of new and existing clients, as well as to deliver on the promise of as-a-service offerings, HCL needs to repurpose the products and make significant investments in modernizing legacy IP
  • Financial momentum sustenance: With an increasing number of clients moving away from on-premise environments to cloud, it remains to be seen if HCL can sustain the US$650 million annual revenue projection from these products
  • Customer apprehensions: Customers that have bundled these products as part of large outsourcing contracts built on the foundation of their relationships with IBM will likely be apprehensive about the products’ strategic direction, ongoing management, and integration challenges as their IT environments evolve
  • The illusion of cross-sell: It remains to be seen if HCL can succeed in cross-selling digital services for these legacy products, especially in the beginning of its relationship with the 5,000+ clients currently using the in-scope IBM products.

 The Way Forward

The acquisition definitely is a bold move by HCL, which may seem meaningful from an overall financial investment and ROI perspective. However, the subdued investor confidence reflects poor market sentiment, at least at the start. Although this could be considered a short-term consequence, HCL’s investments in these legacy products is in stark contrast to the way the rest of industry is moving forward.

On the day of the acquisition, HCL’s stock price fell 7.8 percent, signaling negative market sentiments and thumbs down from analysts. In contrast, the market behaved differently in response to  acquisitions by HCL’s peers in the recent past.

To prove the market wrong, HCL needs to focus its efforts on developing and innovating on top of these products; developing synergies with its ADM, infrastructure, and digital services; alleviating client apprehensions; and providing a well-defined roadmap on how it plans to sustain momentum leveraging these products over the long term.

What is your take on HCL’s acquisition of these IBM products? We would love to hear from you at [email protected] and [email protected].

SAP Accelerates Experience Pivot with a $8 billion Bet on Qualtrics | Sherpas in Blue Shirts

By | Blog, Cloud & Infrastructure, Customer Experience, Mergers & Acquisitions

Just days before 16-year old Qualtrics was due to launch its IPO, SAP announced its acquisition of the customer experience management company in an attempt to bolster its CRM portfolio. Qualtrics, one of the most anticipated tech IPOs of the year, and oversubscribed 13 times due to investor demand, adds to SAP’s arsenal of cloud-based software vendor acquisitions.

Delving into SAP’s Strategic Intent

Seeking transformational opportunities, the acquisition will allow SAP to sit atop the experience economy through the leverage of “X-data” (experience data) and “O-data” (operational data). Moreover, the acquisition will enable SAP to cash in on a rather untapped area that brings together customer, employee, product, and brand feedback to deliver a holistic and seamless customer experience.

SAP had multiple reasons to acquire Qualtrics:

  • First, it combines Qualtrics’ experience data collection system with SAP’s expertise in slicing and dicing operational data
  • Second, it sits conveniently within SAP’s overarching strategy to push C/4 HANA, its cloud-based sales and marketing suite.

SAP’s acquisition history makes it clear it seeks to achieve transformative growth by bolting in capabilities from the companies it acquires. It has garnered a fine reputation when it comes to onboarding acquired companies and realizing increasing gains out of the existing mutual synergies. Its unrelenting focuses on product portfolio/roadmap alignment, cultural integration, and GTM with acquired companies have been commendable.

Here is a look at its past cloud-based software company acquisitions:

SAP has taken a debt to finance the Qualtrics acquisition, making it imperative to show business gains from the move. With Qualtrics on board, it seems SAP’s ambitious cloud growth target (€8.2-8.7 billion by 2020) will receive a shot in the arm. However, the acquisition is expected to close by H1 2019, implying that the investors will have to wait to see returns. Moreover, SAP’s stock price in the past 12 months has dropped by 10.6 percent versus the S&P 500 Index rise of 3.4 percent. While SAP has seen revenue growth, its bottom-line results have been disappointing with a contraction in operating margins (cloud revenues have grown but tend to have a lower margin profile in the beginning.) This is likely to be further exacerbated given the enterprise multiple for this deal.

Fighting the Age-old Enterprise Challenge

Having said that, SAP sits in a solid location to win the war against the age-old enterprise conundrum of integrating back-, middle-, and front-office operations and recognize the operational linkages between the functions. Qualtrics’ experience management platform, known for its predictive modeling capabilities, generating real-time insights, and decentralizing the decision-making process, will certainly augment SAP’s value proposition and messaging for its C/4 HANA sales and marketing cloud. In fact, the mutual synergies between the two companies might put SAP at an equal footing with Salesforce in the CRM space.

While it may seem that SAP has arrived a bit early to the party, given that customer experience management is still a niche area, the market’s expected growth rate and SAP’s timely acquisition decision may allow it to leap-frog IBM and CA Technologies (now acquired by Broadcom), the current leaders in the space. Indeed, over the last couple of years, Qualtrics has pivoted beyond survey and other banal customer sentiment analysis methods to create a SaaS suite capable of:

  • Analyzing experience data to derive insights about employees, business partners, and end-customers
  • Democratizing and unifying analytics across the back-, middle-, and front-office operations
  • Delivering more proactive and predictive insights to alleviate experience inadequacy.

Cognitive Meets Customer Experience Management – The Road Ahead

SAP’s Intelligent Enterprise strategic tenet, enabled by its intelligent cloud suite (S/4 HANA, Fiori), digital platform (SAP HANA, SAP Data Hub, SAP Cloud Platform), and intelligent systems (SAP Leonardo, SAP Analytics Cloud), has allowed customers to embed cutting edge technologies – conversational AI, ML foundation, and cloud platform for blockchain. SAP is already working towards the combination of machine learning and natural language query (NLQ) technology to augment human intelligence, with a vision to drive business agility. Embedding the experience management suite within next-generation Intelligent Enterprise tenet will play a key role in achieving the exponential growth targets by 2020.

Please share your thoughts on this acquisition with us at: [email protected] and [email protected].

Broadcom, CA Technologies, and the Infrastructure Stack Collapse | Sherpas in Blue Shirts

By | Blog, Cloud & Infrastructure

In news that has caused a huge stir in the technology world, Broadcom, the semiconductor supplier, reached a definitive agreement to acquire CA Technologies, a leading infrastructure management company, for a whopping US$18.9 billion.

Unpacking the Strategic Intent behind the Deal

Many view the deal through a dubious, even critical, lens that points to Broadcom’s loss of strategic focus through a broadening of its capabilities beyond the semiconductors space. While the paucity of business synergies may seem true given the discrete nature of the two companies, the deal is not surprising when you examine the fragmented nature of the infrastructure software market.

Coping with bewildering choices in the realm of IT infrastructure management has been an impediment for most enterprises, leaving IT personnel grappling with a myriad of software and tools. Having said that, the advent of the converged stack approach is seen as the vanguard that can bear the mantle that democratizes infrastructure management. As time unravels the mysteries behind this move, the acquisition of an infrastructure software company may prove to be Broadcom’s crown jewel.

Broadcom blog Enterprise stack

Why CA?

Broadcom has long embraced inorganic growth. While its past acquisitions have centered around expanding its portfolio in the semiconductor business, CA will likely give it considerable headway in becoming a leading infrastructure technology company.

Broadcom’s revenue has been bolstered by its strategy of buying smaller businesses, and incorporating their best performing business units into the company. With this acquisition – expected to close by Q4 2018 – Broadcom is looking at ~25 percent business revenue from enterprise software solutions.

Broadcom will also gain access to CA’s 1,500+ existing patents on various topics including service authentication, root cause analysis, anomaly detection, IoT, cloud computing, and intelligent human-computer interfaces, as well as 950 pending patents.

Broadcom blog History

When you examine Broadcom’s business mix shift, you see an acquisition-driven approach aligned to its Wired Infrastructure and Wireless Communication business segments. These are the segments where CA brings in more downstream muscle to create an end-to-end offering for the infrastructure stack.

Broadcom blog Revenue History

Thus, Broadcom’s apparent strategic tenet to establish a “mission critical technology business” seems to be satisfied.

However, not everyone is convinced. The market was caught off guard, and is worried that this might be a reaction to Broadcom’s failed bid for Qualcomm earlier this year. Its stock has fallen by 15 percent since June 11, and the street is betting that it will plummet by another 12 percent by the middle of August 2018.

Broadcom blog History Graph

It’s Not Just about Broadcom, Is It?

With software as the strategic cornerstone, CA Technologies has scaled its offerings in systems management, anti-virus, security, identity management, applications performance monitoring, and DevOps automation. With enterprises shifting gears in their cloud adoption journey, revenue from CA Technologies’ leading business segment – Mainframe Solutions – has been declining for the last couple of years. But this decrease has been offset with rising revenues from its Enterprise Solutions. Moreover, before the acquisition announcement, CA Technologies had been trying to shift its model from perpetual licenses to SaaS and cloud models. As Broadcom moves ahead with onboarding CA Technologies’ offerings, it will gain access to downstream revenue opportunities as it will be able to provide customers a broader solutions portfolio.

The Way Forward

The size and opaque intent of this deal have evoked myriad market reactions. With Broadcom taking an assertive stance to expand into the fragmented infrastructure software market, increase its total addressable market, and capitalize on a recurring revenue stream, we wouldn’t be surprised to see it forging partnerships to propel the software solutions business it acquired from CA. Additionally, this deal will probably not face the same regulatory hurdles that ended up derailing Broadcom’s US$117 billion takeover bid for Qualcomm.

As Broadcom broadens its portfolio from beyond its core semiconductors business, it is laying down a marker and taking meaningful steps to build an enterprise infrastructure technology business. This aligns well with the collapsing enterprise infrastructure stack. But the question is – will CA’s largely legacy dominance be enough to propel this turnover in the digital transformation era?

While uncertainty about business synergies looms over this proposed acquisition, it will be interesting to monitor how Broadcom nurtures and aligns CA’s enterprise software business in its broader go-to-market strategy.

Genpact co may get Hexaware, Mphasis bids | In the News

By | In The News

Hexaware Technologies, Mphasis and L&T Infotech are among the potential suitors evaluating a bid to acquire IT services and consulting business Headstrong, put on the block by the NYSE-listed Genpact, people directly aware of the matter said.

US-based Everest Group’s CEO Peter Bendor-Samuel said the Headstrong acquisition has been problematic from the start as it did not have enough scale to succeed inside Genpact. It struggled with being a small IT fish in a large BPO pond. “It also had cultural differences and was focused in capital markets, which is not an area of strength for Genpact.”

Salesforce Acquires MuleSoft Proving APIs Hold the Key to the Digital Enterprise Kingdom | Sherpas in Blue Shirts

By | Blog

In a major statement that reaffirms its vision of becoming the backbone of the modern digital enterprise, Salesforce acquired MuleSoft, a leading application network platform, for a hefty US$6.5 billion. This is the software giant’s largest ever acquisition.

Strategic Intent Behind the Deal

It is evident that MuleSoft will complement Salesforce’s PaaS agenda, per Salesforce’s statement that it will leverage MuleSoft to create the “Salesforce Integration Cloud.” MuleSoft’s AnyPoint Platform, which connects different cloud applications via APIs, is a good fit with Salesforce’s platform offerings.

In addition to strengthening Salesforce’s PaaS portfolio, the acquisition will enable the combined entity to:

  • Enhance its value proposition: Drive a more compelling digital transformation story across enterprises around personalized customer experiences, a single platform for a 360˚ enterprise view, and an enhanced industry-specific suite of solutions
  • Derive synergies from focus on the API economy: Aid enterprises’ need for faster time-to-value by enabling ease of data access across cloud and legacy systems, as well as enhance revenue by cross-selling / bundling across MuleSoft’s 1,200+ customers

Gain a stronger competitive foothold: Salesforce has been competing with Oracle and Microsoft in the CRM space. With players such as ServiceNow and Workday pivoting towards platform services, this deal enhances Salesforce’s platform play.

Crunching the Numbers

Salesforce CEO Marc Benioff has been chasing hyper-growth, with ambitions to nearly double the company’s current revenue to US$20 billion by 2022. While Salesforce’s growth has been relatively muted growth recently (~25%), he application network platform business grew by an impressive 37 percent YoY in Salesforce’s Q418. This presents a strong opportunity for Salesforce to enhance its PaaS portfolio, beyond the headway it’s been making in infusing AI and IoT capabilities across its platform to deliver a more personalized experience for customers.

SFDC blog

Naturally, the next smart move for Salesforce would be building or acquiring a strong API integration engine that helps it access and connect data across enterprises, regardless of its location. Evaluating its acquisition chronology, it was time for Salesforce to start owning the integration experience as well, while also trying to stitch together an integration cloud and potential iPaaS offering. The acquisition of MuleSoft gives it just that, with the added advantage of ensuring a faster time to market and a broader customer base. Additionally, MuleSoft was growing at a fast clip, clocking revenue of US$297 million for FY2017, 58% YoY growth, with guidance of US$405-415 for FY2018 (with an aim to reach US1 billion in revenue by 2021).

The growth story notwithstanding, Salesforce is paying a premium for MuleSoft, with an enterprise value to sales multiple over 20x, which is a reasonably high compared to typical deals in the segment. Salesforce is not alone to tap into the API ecosystem. Google acquired Apigee in 2016 for US$625 million, while Red Hat acquired 3Scale in 2016.

You Can’t Just Patch-fix in the Digital Era

This interest in tapping into the API and integration economy is not accidental. Enterprises have realized that they cannot move the needle meaningfully when it comes to digital transformation if they don’t get their technology estate in order. As we’ve opined before, creating the next breakthroughs in digital requires collapsing the stack to eliminate friction across the value chain. Digital needs to be enabled through convergence of emerging technology themes to drive efficiencies across back-office and core mid-office business processes and enhance competitive advantage by impacting market-facing front-office processes. To do this, it is not enough to invest in a solitary mobile app for customers or an internal gamification initiative, it requires efficient plumbing (e.g. DW/BI, creating data lakes, etc.) as a precursor to meaningful digital transformation. Our recent enterprise research also indicates that front office digitalization or Digital for Growth (DfG) is just the tip of the proverbial iceberg (less than a fourth of the spend), while a significant share is focused on the nuts and bolts (Digital for Efficiency / DfE and Digital enablement).

SFDC-DfG blog

A Word of Caution for Ecosystem Stakeholders

Although there is a general optimism around the business value of the acquisition, the stakeholders need to be wary of some of the potential roadblocks that will emerge:

  • Enterprises: With Salesforce aiming to be their digital transformation partner, the threat of lock-in becomes stronger and their bargaining power dynamics change
  • Competitors: The deal allows Salesforce to look beyond the CRM landscape and aid the digital transformation push, increasing competition with Microsoft, Oracle, ServiceNow, etc. MuleSoft’s peers, such as Sensedia and WSO2,will also be looking to compete with the might of the merged entity and evaluate their strategic growth options
  • Salesforce-MuleSoft: Managing enterprise lock-in concerns, anti-incumbency, and talent integration will be crucial to unlocking significant value through this ambitious deal. Also, integration in the modern enterprise, while a fundamental success requirement, is often riddled with tricky organizational inertia, data silos, fragmented systems, and change resistance

The Way Forward

The size and intent of the deal has certainly piqued the market’s interest. With the aggressive stance Salesforce is taking to expand its PaaS portfolio while playing the customer experience card, it wouldn’t be surprising if we see it forging more acquisitions and/or partnerships, including other companies in the API economy. Enterprises will need to keenly evaluate this landscape to choose the right partner in their digital transformation journey.

What is your take on the Salesforce-MuleSoft deal? We would love to hear from you at [email protected] and [email protected].

Game on in P&C Insurance! Genpact Acquires BrightClaim | Sherpas in Blue Shirts

By | Banking, Financial Services & Insurance, Blog, Mergers & Acquisitions

Challenging macroeconomic conditions, demanding digitally-savvy consumers, and rising fraud are pushing P&C insurance carriers to be more demanding than ever of their service providers. Carriers not only expect optimization of cost of insurance operations, but also assistance in gaining and retaining market and customer mind share. This is forcing service providers’ hand to move from an arbitrage-first to a digital-first model.

Meanwhile, insurance BPO service providers’ origins in the arbitrage-first world and their strategic choices in large P&C product categories, such as personal lines, worked well for a while. But with the U.S. and U.K. markets maturing, service providers are being forced to reconsider their strategy. They now not only need to focus on the customer experience, their digital footprint, and lowering TCO, but also on developing deeper domain expertise to drive growth and remain differentiated in the market.

As we talked about in our report, “Property and Casualty Insurance BPO – Annual Report 2016: The Dawn of Transformational Era – Adapt and Evolve to Succeed,” this leaves them with three options to avoid falling into the no-growth trap:

  • Develop capabilities in judgment-intensive processes (i.e., trod the path taken by Third-Party Administrators, or TPAs)
  • Take the plunge to develop capabilities for handling more “exotic” P&C product categories (such as insurance of dump trucks!)
  • Explore under-penetrated (emerging) markets

Genpact (a Leader on Everest Group’s P&C insurance BPO PEAK Matrix-2017) clearly decided to pull the trigger on this conundrum, announcing on 3 May that it had acquired BrightClaim. BrightClaim’s suite of services includes property claims management (including catastrophe claims), claims adjusting, TPA services, and contents pricing services.

With this acquisition, Genpact has gained deeper domain expertise in U.S. P&C insurance claims market, and has strengthened its portfolio of digital technologies and fraud detection capabilities.

The acquisition also includes National Vendor, a BrightClaim associated company, which has a nationwide network of contractors and offers carriers a direct repair program along with content fulfillment. Genpact can leverage this to provide cost-effective and faster claims settlement services, which is expected not only to reduce claims payouts for insurers, but also to improve the customer experience.

Genpact’s top competitors in the U.S. P&C market are Cognizant and EXL. With both of them continuing to augment their capabilities and developing deep domain expertise, it was imperative for Genpact to make a move. As a favorable by-product of this acquisition, Genpact has further strengthened its onshore delivery capability with centers in Atlanta, GA and Austin, TX.

Prima facie, the deal looks accretive and has the potential to enable Genpact to challenge other Leaders in P&C insurance BPO space.

How will other providers in this segment respond? Game on! We’d say….