SciQuest, Inc., a provider of cloud-based spend management solutions, on Tuesday said it acquired the procurement and sourcing software provider CombineNet in a deal worth $43 million, including $26 million in cash with the rest in common stock.
While CombineNet is considered a "pure play" procurement tool, meaning the system can be used to procure virtually any service or tangible product, one of its core verticals is the transportation procurement market. It's the biggest acquisition of such a procurement provider since SAP acquired Ariba in May 2012
, though that deal had little impact on the logistics industry.
SciQuest indicated it intends to operate CombineNet in a hands-off manner, preserving the company’s Pittsburgh headquarters, according to Thomas Kase, principal analyst at the Spend Matters Group.
"SciQuest was smart to have plucked a seriously valuable jewel in the marketplace,” he said.
“The acquisition expands SciQuest's strategic sourcing footprint with an advanced, cloud-based tool that improves procurement decisions for spend categories that are typically beyond the capabilities of traditional eSourcing software,” SciQuest said in a statement. “CombineNet's solution is primarily designed for Forbes Global 2000
companies and other organizations that conduct high-value, complex sourcing events.”
CombineNet’s competitive advantage has traditionally resided in its robust proprietary technology, a platform that allows users to rapidly process complex bid events across a range of procurement verticals, one of which is transportation.
“The software allows users to create highly-customizable online requests for proposals and run scenarios that balance a number of factors including cost, risk, timing, value and other important criteria with internal business rules and preferences,” SciQuest said. “Customers can use the technology to acquire both direct and indirect resources within critical spend categories.”
CombineNet currently has about 100 customers, including leaders in the retail, consumer packaged goods, restaurant and food and beverage manufacturing industries.
“Due to the constraints of traditional sourcing software, many companies are forced to split complex sourcing events into smaller, isolated components or utilize error-prone, manually intensive processes,” said Stephen Wiehe, president and chief executive officer of SciQuest. “These ad hoc approaches lead to suboptimal results, failing to capture the full amount of potential savings. Through CombineNet's unique algorithms, multitenant SaaS (software-as-a-service) architecture, deep understanding of best practices and 22 patents, we are acquiring the best solution in the advanced sourcing arena. We expect to capitalize on the demand for CombineNet's leading solution in both the commercial market and our franchise markets.”
CombineNet had revenue of $12 million in 2012 and SciQuest said it expects the acquisition to generate roughly $1 million of revenue monthly for the remainder of 2013.
“Over time, SciQuest expects to be able to increase CombineNet's revenue growth rate, operating margins and free cash flow margins to be in-line with those of the overall company,” SciQuest said.
Kase said the deal gives SciQuest some unique technology and domain expertise in complex modeling and solutions development.
“CombineNet has been perhaps the greatest pioneer of applying combinatorial optimization to strategic sourcing and the supply chain (e.g., transportation bidding) out there,” Kase wrote on the Spend Matters
blog. “The CombineNet deal clearly gives SciQuest some unique technology and domain expertise in complex modeling and solutions development.”
Kase said SciQuest sees CombineNet’s range of patents as a defense against competitors and that it will use the acquisition to broaden its portfolio of large global accounts, companies “that consume the CombineNet solutions set happily and hungrily.”
detailed in July 2011 how CombineNet helped the pharmaceutical company Bayer AG moved from spreadsheet-based transportation procurement to an automated process
. - Eric Johnson