Acquisitions Archives - Everest Group

Is It Open Season for RPA Acquisitions? | Blog

September 8, 2020

Robotic Process Automation (RPA) is a key component of the automation ecosystem and has been a rapidly growing software product category, making it an interesting space for potential acquisitions for a while now. While acquisitions in the RPA market have been happening over the last several years, three major RPA acquisitions have taken place in quick succession over the past few months: Microsoft’s acquisition of Softomotive in May, IBM’s acquisition of WDG Automation in July, and Hyland’s acquisition of Another Monday in August.

These acquisitions highlight a broader trend in which smaller RPA vendors are being acquired by different categories of larger technology market players:

Big enterprise tech product vendors like Microsoft and SAP
Service providers such as IBM
Larger automation vendors like Appian, Blue Prism, and Hyland.

Recent RPA acquisitions timeline:

Why is this happening?

The RPA product market has grown rapidly over the past few years, rising to about US$ 1.2 billion in software license revenues in 2019. The market seems to be consolidating, with some of the larger players continuing to gain market share. As in any such maturing market, mergers and acquisitions are a natural outcome. However, we see multiple factors in the current environment leading to this frenetic uptick in RPA acquisitions:

Acquirers’ perspective – In addition to RPA being a fast-growing market, new category acquirers – meaning big tech product vendors, service providers, and larger automation vendors – see potential in merging RPA capabilities with their own core products to provide more unified automation solutions. These new entrants will be able to build pre-packaged solutions combining RPA with other existing capabilities at lower cost. COVID-19 has created an urgency for broader automation in enterprises, and the ability to offer packaged solutions that provide a quick ROI can be a game-changer in this scenario. Additionally, the adverse impact of the pandemic on the RPA vendors’ revenues, which may have dropped their valuations down to more realistic levels, is making them more attractive for the acquiring parties.

Sellers’ perspective – There is now a general realization in the market that RPA alone is not going to cut it. RPA is the connective tissue, but you still need the larger services, big tech/Systems-of-Record and/or intelligent automation ecosystem to complete the picture. RPA vendors that don’t have the ability to invest in building this ecosystem will be looking to be acquired by larger players that offer some of these complementary capabilities. In addition, investor money may no longer be flowing as freely in the current environment, meaning that some RPA vendors will be looking for an exit.

What can we expect going forward?

The RPA and broader intelligent automation space will continue to evolve quickly, accelerated by the predictable rise in demand for automation and the changes brought on by the new entrants in the space. We expect to see the following trends in the short term:

More acquisitions – With the ongoing market consolidation, we expect more acquisitions of smaller automation players – including RPA, Intelligent Document Processing (IDP), process orchestration, Intelligent Virtual Agents (IVA), and process mining players – by the above-mentioned bigger categories as they seek to build more complete transformational solutions.
Services imperative – Scaling up automation initiatives is an ongoing challenge for enterprises, with questions lingering around bot license utilization and the ability to fill an automation pipeline. Services that can help overcome these challenges will become more critical and possibly even differentiating in the RPA space, whether the product vendors themselves or their partners provide them.
Evolution of the competitive landscape – We expect the market landscape to undergo considerable transformation:
- In the attended RPA space, while there will be co-opetition among RPA vendors and the bigger tech players, the balance may end up being slightly tilted in favor of the big tech players. Consider, for instance, the potential impact if Microsoft were to provide attended RPA capabilities embedded with its Office products suite. Pure-play RPA vendors, however, will continue to encourage citizen development, as this can unearth low-hanging fruit that can serve as an entry point into the wider enterprise organization.
- In the unattended RPA space, pure-play RPA vendors will likely have an advantage as they do not compete directly with big tech players and so can invest in solutions across different systems of record. Pure-play RPA vendors might focus their efforts here and form an ecosystem to link in missing components of intelligent automation to provide integrated offerings.

There are several open questions on how some of these dynamics will play out over time. You can expect a battle for the soul (and control) of automation, with implications for all stakeholders in the automation ecosystem. Questions remain:

How will enterprises approach automation evolution, by building internal expertise or utilizing external services?
How will the different approaches automation vendors are currently following play out – system of record-led versus platform versus best of breed versus packaged solutions?
Where will the balance between citizen-led versus centralized automation lie?

Only time will tell how this all plays out.

But in the meantime, we’d love to hear your thoughts. Please share them with us at [email protected], [email protected], and [email protected].

Koch Industries’ Takeover of Infor Signals Key Bet on Cloud ERP Market | Blog

February 7, 2020

Infor – a global leader in business cloud software specialized by industry – announced on February 4, 2020, that Koch Equity Development (KED) LLC, the private investment arm of Koch Industries, Inc., has entered into a definitive agreement to acquire Golden Gate Capital’s equity stake to take 100 percent ownership of Infor. Before the agreement, Koch Industries owned about 70 percent of Infor. While the official figures are not out, public sources peg the deal at close to US$13 billion, including preferred shares.

Why did Koch do this? Here’s our analysis of the key reasons.

Riding the ERP demand bandwagon: Our recent analysis indicates that ERP-focused process transformation and modernization drove over 30 percent of all digital transformation initiatives in 2019. While Oracle and SAP are the largest players in this space, more than 35 percent of the market is still comprised of a long tail of bespoke ERP, where there is likely to be huge churn and consolidation. Infor promoters wanted to ride this growth opportunity through an IPO.
SAP/Oracle in the equation: SAP is the largest player in the ERP market, and its current licenses are reaching end of life in 2025. Also, it’s well known that SAP is currently offering significant incentives to nudge enterprises to accelerate their move to S/4HANA, especially its cloud version. Oracle is using a similar incentive-oriented approach for its cloud-based applications. Promoters of Infor probably saw how this competitive dynamic would play out.
Taking the private route instead of IPO: In a market driven by incentives, a privately-owned organization backed by a diversified cash rich promoter probably gives Infor a better shot at competing with its much larger competitors. For a listed firm, navigating a growth-oriented strategy (by de-emphasizing margins) would have been a tough nut to crack. Plus, competing with larger peers will require a significant investment in product modernization.
The Koch portfolio companies: The jury is still out on whether Infor can credibly compete with SAP and Oracle in the broader ERP market. However, as the second largest privately-owned conglomerate in America (Cargill is the largest), the parent Koch Industries can enable a captive market for Infor to start with.

Deal implications

For Infor – potential growth through synergies: As we’ve already noted, this acquisition may give Infor access to a captive customer base in Koch Industries’ subsidiary and partner network. Given Koch’s presence in more than 60 countries, this may also allow Infor to expand the geographic footprint of its client base, especially in markets outside of North America where it has limited presence. This is coming at a time when enterprises in Europe and APAC are beginning to embrace SaaS offerings.

For Koch – potential RoI: We see this takeover as a typical private equity play to improve the value of an existing asset by riding the ERP demand wave. While Koch Industries has been making investments in its portfolio on the technology sector, we do not see this tweak in ownership as a sign of change in Koch’s portfolio mix. Given that a large chunk of Infor’s client base is still struggling with aging on-premises applications, Infor will need strong investment backing to convince its existing user base of its long-term cloud ERP vision.

For systems integrators – potential opportunities: Koch industries generated over US$100 billion in annual revenues in FY19. While we do not have estimates for the ERP transformation opportunities within Koch portfolio companies, it is likely to be a significant opportunity for systems integrators to focus on, using an Infor playbook.

For enterprises – better incentives, more supply-side investments: If Koch backs its investment with a large innovation fund, enterprises may gain on the following parameters:

Better incentives: Due to intensifying competition, enterprises may see more creative financial solutions and incentives around cloud-based ERP
Verticalized product offerings: Industry-focus and verticalization is gaining traction in the ERP space. Koch’s expertise in industries including manufacturing, chemicals, energy, petroleum, finance, and commodities may lead Infor to accelerate micro-vertical solutions faster than its competition.

The path forward

Infor has seen almost flat growth of around 3 percent over the past five years, due primarily to its long-term focus on SaaS revenues, which directly cannibalized its existing license revenues from on-premises offerings. In FY19, Infor’s SaaS revenue – which is about 20 percent of its overall revenue base of US$3.2 billion – grew at approximately 21 percent, while its licensing fees declined at about 12 percent. Given this strong focus on SaaS, Infor is well positioned in the manufacturing and allied verticals to overcome some of the critical cloud migration challenges and cater to some industries’ process-specific demands.

However, over the past year, there have been multiple big-ticket acquisitions in the enterprise platform market, geared to improving product capabilities – especially in areas related to cloud and analytics. In this hyper-competitive space, it will be challenging for Infor to compete credibly at scale based only on promoter-backed cash flow. Watch this space for more on how this move pans out.

Blue Prism’s Acquisition of Thoughtonomy: Does 1+1 =3? | Blog

June 21, 2019

As a reader of this blog, you likely know that we’ve been researching and analyzing the RPA market in-depth for more than five years and have conducted multiple RPA technology vendor PEAK Matrix^® evaluations in the same time frame.

Starting in 2015, Blue Prism earned a Leader’s spot in our assessment because of its extensive features and strong market presence. Thoughtonomy made it into our Leader’s group starting in 2016 for its Software-as-a-Service (SaaS) offering, and for combining RPA and AI for unstructured data processing.

Because it is a public company, Blue Prism’s strong growth over the years is a matter of public record. Thoughtonomy has also grown strongly, gaining around 77 direct clients and another 200 indirect through its service provider partners.

Against that backdrop, we believe that Blue Prism’s announcement earlier this week that it is acquiring Thoughtonomy for a total consideration of £80 million is a positive move for three reasons.

First, Blue Prism gains several hundred mid-sized direct clients in an instant. Second, and more importantly, its ability to deliver intelligent automation through a SaaS delivery model gives it the opportunity to much more easily sell into the mid-market. Third, this is a strategic move by Blue Prism. Right now, the adoption of RPA on the cloud is in the early stages. At the same time, many AI solutions are offered on the cloud to enable access to computing power on demand, and many work with RPA in combination when needed. Having both RPA and AI on the cloud could help companies realize the full potential of intelligent automation and achieve higher scalability. Blue Prism is becoming cloud-ready with this acquisition.

But there is more.

What Thoughtonomy Brings to Blue Prism

Thoughtonomy was set up in 2013 to provide a cloud-based intelligent automation platform. At its core, it is a cloud version of Blue Prism’s RPA, combined with other capabilities that Thoughtonomy has developed over the years, including:

Features for human-in-the-loop automation (Self-Serve), including next-best-action recommendation – These features will help Blue Prism with attended automation that is typically used in the front office. Currently, Blue Prism offers human-in-the-loop through its technology partner, TrustPortal, which provides the UI for this capability
Built-in AI / machine learning within the platform to optimize workload distribution and robot performance
Natural Language Processing (NLP), sentiment analysis, and chat interface to automate processes using chat as a channel
A web-based interface for controlling and monitoring robots – While Blue Prism offers a central console for controlling and monitoring robots, it is not web-based. This will help improve the accessibility of its console
Wireframer, an intelligent coding quality tool – Blue Prism currently has an automation methodology, but not a coding quality tool
Use cases in IT process automation – This will help improve Blue Prism’s value proposition for IT use cases, which are growing in demand

In addition, Thoughtonomy will help enhance Blue Prism’s presence in some verticals, such as healthcare and government & public sector, where it currently has limited market share.

With Blue Prism at the heart of Thoughtonomy’s SaaS platform, the job of integrating the two product sets should be relatively straightforward.

All in all, we believe in this case that 1+1 does add up to more than 2. Is it a 3? Maybe not, but it is a solid 2.5.

The challenges of SaaS, selling to the mid-market, and targeting the front-office market

Blue Prism’s model includes a minimum licensing requirement that can make it expensive for smaller companies to get started with its RPA offering. Thoughtonomy was absorbing these requirements. Blue Prism will no doubt clarify how it will handle licensing for its SaaS offering.

The addition of Thoughtonomy’s human-in-the-loop interface will help boost Blue Prism’s attended automation value proposition. But if it intends to target this segment – which primarily consists of front-office and contact center use cases where thousands of robots might be required – it will need to adjust its pricing to reflect large orders. Additionally, it will need to deliver more desktop-based features in order to outshine established attended automation vendors such as NICE and Pega. As this doesn’t appear to be a high-priority segment for Blue Prism, we may not see those additional features in the near future.

The market outlook

With this move into SaaS, Blue Prism has captured a competitive edge. We expect other companies will quickly follow suit. Several RPA vendors are cash-rich thanks to recent private equity investments, as well as good organic growth, and they may well have their eyes trained on potential acquisitions. Other RPA technology vendors and other companies that provide complementary technologies, like chatbots, could well be either acquirers or acquisition targets. AI-based automation vendors, e.g., those with NLP or intelligent virtual agents, could make acquisitions of their own to complement their products. And we wouldn’t be surprised to see large software vendors acquiring RPA vendors, just like SAP did last year with its acquisition of Contextor, an RPA vendor that we positioned as an Aspirant in our 2018 RPA Technology Vendor PEAK Matrix^® Assessment several months before SAP made its move.

This is just the beginning of the consolidation phase of this expanding market, and we have no doubt there is more to come.

Everest Group will be publishing its 2019 RPA Technology Vendor PEAK Matrix^® Assessment in the next few weeks. In the meantime, please check out our recent service optimization technology-focused publications, including Intelligent Document Processing (IDP) Annual Report 2019 – Let AI Do the Reading.

What Makes Mindtree an Attractive Acquisition for L&T Infotech? | In the News

March 7, 2019

L&T Infotech has been a front runner in the race to acquire a 20.4 percent stake in Mindtree. Reports suggest LTI is willing to offer close to Rs 975 a share to acquire this 20 percent. This pegs the value of this stake, owned by VG Siddhartha, the Founder of Coffee Day Enterprises that operates the Café Coffee Day chain of cafes, at roughly Rs 3,400 crore.

According to Chirajeet Sengupta, Partner, Everest Group, “L&T Infotech (LTI) has been on a very strong growth path over the last few quarters. They have been growing significantly better than their peers.” To sustain this growth path, the company has been making investments to grow inorganically. “If you look at the last few quarters, they have made some very interesting acquisitions,” Sengupta pointed out.

How Enterprises Benefit In Digital Transformation From DXC Technology Acquiring Luxoft | Blog

January 8, 2019

DXC Technology yesterday announced its acquisition of Luxoft, a global-scale digital innovator with world-class digital talent. I think this is an interesting acquisition, not only from a services industry perspective but also from the perspective of benefits to enterprise customers undertaking digital transformation.

Office Depot Acquires CompuCom in an Amazon–Driven Pivot | Sherpas in Blue Shirts

October 9, 2017

The adage, “Disruption does not discriminate,” rang true again with Office Depot’s acquisition of CompuCom last week.

The beleaguered office supplies retailer bought the IT infrastructure firm for US$ 1 billion, illustrating yet again the disruptive impact of Amazon and the digital economy. With this deal, Office Depot expects to add US$1.1 billion in revenue, and achieve cost synergies to the tune of US$40 million in two years. As part of the transaction, Thomas H. Lee Partners LP, the PE firm that owns CompuCom, will assume an 8 percent ownership in Office Depot.

The why

The deal comes at a time when Office Depot’s business is in the doldrums due to diminishing demand for traditional office supplies as offices go digital and online retailers eat into brick and mortar sales. CompuCom had its own share of problems, with four CEOs in the past four years, declining revenue, and diminishing investor confidence.

As the proposed takeover by Staples fell at the antitrust altar last year, Office Depot had been looking for ways to strengthen sales that had continued to slacken for several quarters. Its hiring of a slew of tech executives indicated that a drastic change was in the cards.

With this acquisition, Office Depot aims to pivot towards a business services and technology play in order to achieve:

Superior value proposition: Provide a stronger story to customers around the “workplace ecosystem” for enterprises
Cross-sell opportunities
- Leverage its “Last Mile” footprint to provide Tech-Zone help desks in Office Depot’s 1,400 retail locations, thus increasing CompuCom’s service-based opportunities
- Use the Tech-Zone help desks to increase on-premise traffic, thus driving traditional sales
Topline growth from recurring revenue streams
Synergies around the SMB market: Both companies target this highly fragmented market, with Office Depot’s omni-channel strategy offering access to nearly 6 million SMBs.

So, all ends well…right?

While the CompuCom acquisition is in line with the “Software Eats Everything” theme, meaningful questions exist:

Uninspiring investor confidence: Office Depot’s share price dropped by 15 percent following the announcement. Although this can be considered a short-term consequence, both firms have struggled as secular market trends reshape their core industries. Will the combined entity realize its promised value?
Digital innovation: There is little clarity on the combined entity’s innovation strategy around the digital workplace construct. The onus is on it, especially CompuCom, to deliver a value proposition centered on seamless customer experience
The Amazon conundrum: With Amazon disrupting traditional business models – via e-channels and innovation across physical channels through concepts such as Amazon Go – the combined entity must chalk out a strategy to counter Amazon’s onslaught from both the retail and technology perspectives
Change management: The combined entity needs to guard itself against organizational inertia, as the pivot from a brick and mortar model to a services play will require considerable structural changes and incentive restructuring
Customer education: The combined entity must educate customers about its new value proposition and what it means for their business and their business as usual to assuage any concerns that lead to customer flight.

The way forward

There have been previous instances of retailers acquiring Managed Service Providers (MSPs) to enhance their value proposition and margins. This includes Staples’ acquisition of Thrive Networks in 2007, and Best Buy’s acquisition of mindSHIFT in 2011. Although worthy pursuits, these acquisitions failed due to executional fallacies, lack of a clear-cut strategy, and their erroneous belief that SMBs would choose them to outsource their IT in a managed services model.

On the other hand, most of CompuCom’s revenue comes from conventional project-based and procurement engagements. The customer experience point is important here. If Office Depot can make this model a de facto choice for customers looking for a better customer experience, this might just work.

That said, the continuous disruption by players such as Amazon and the proliferation of digital users who demand a personalized user experience across all channels will play a key role in determining the success of this acquisition.

Creating a definitive digital value proposition aligned to customer expectations and chalking out a clear, dynamic execution strategy are the key tenets Office Depot must embrace for the CompuCom acquisition to succeed. Indeed, they are our words to the wise for any service-related organizations considering M&A activity in today’s digitally-disrupted environment.

What is your take on Office Depot’s pivot? We would love to hear from you at [email protected] and [email protected]

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Tag: acquisitions