In its quest to offer a comprehensive supply management suite AND shift its market focus into the private sector, SciQuest (Ticker: SQI), a provider of cloud-based supply management solutions completed the acquisition of Spend Radar LLC, a provider of a spend analysis solution, last week (October 3).
According to its public filing, “SciQuest is paying a purchase price consisting of $8.0 million in cash and 113,250 shares of common stock plus a contingent payment of up to an additional $6.0 million in cash and 84,938 shares of SciQuest’s common stock based on successful achievement of certain performance targets from the closing date to December 31, 2013.” Additionally, SciQuest expects Spend Radar to contribute $500,000 in non-GAAP revenue and to grow its revenue by a rate in the mid-twenties for all of 2013.
About SciQuest: Founded in 1995, SciQuest has had quite a history, gaining notoriety and fame during the internet bubble era only to be taken private after the crash (in 2004) where it reformulated its model and emerged as cloud-based player in the Procure-to-Pay space with a strong presence in several verticals. SciQuest has a client list that is heavily weighted in higher education, life sciences, and the public sector but has recently stated that it plans to take a more horizontal approach to the market. SciQuest went public (again) with an IPO in September of 2010 and has used part of the money raised to acquire a trio of privately held companies focused on strategic sourcing – (1) AECSoft, a provider of an eSourcing solution and supplier management solutions (January, 2011) (2) Upside Software, a Contract Lifecycle Management (CLM) solution provider [(August, 2012) [Click here to read our analysis of the Upside transaction] and now (3) Spend Radar.
About Spend Radar: Spend Radar is a provider of a cloud-based Spend Analysis solution. The company is based in Chicago and was founded in January of 2009. One of its founders is Rod True, who also founded True Source, the spend analysis solution that was acquired by Procuri in 2006 [Procuri was subsequently acquired by Ariba].
Our Instant Analysis
(note that Ardent Partners will publish a comprehensive report analyzing the SciQuest acquisitions soon)
- From a high-level product standpoint, this appears to be a nice fit. Spend Radar’s cloud-based spend analysis solution rounds out the SciQuest offering to enable a source-to-settle collection of solutions
- Integration and architecture work ahead: a collection of solutions is different than a fully-integrated suite, so SciQuest has some engineering work ahead of itself before it can offer a truly integrated suite.
- Ardent analysts have not demo’d the solution so it went directly to the source and interviewed several Spend Radar customers
- Each customer interviewed had favorable comments about the solution
- Each customer also commented on its very attractive (i.e. low) pricing.
- Some direct customer comments include:
- “They provided a more automated segmentation of categories than other solutions”
- “The team was very easy to work with during our year-long pilot…. very knowledgeable and accommodating”
- “They are a small enough company where they are still nimble and can move quickly. I enjoyed working with the account and go-live team.”
- “The only weakness I see is that they don’t have any other [supply management] modules”
Company (Spend Radar)
- Spend Radar is a successful start-up led by two experienced industry veterans of the supply management space
- Spend Radar utilized a direct and channel sales strategy
- Channel partners include Corbus, CombineNet, and Paladin on its website
- Ardent Partners believes that other companies including Iasta and Deloitte are (or have been) partners
- Sources tell us that Spend Radar has approximately 200 customers (the companies have not confirmed this figure)
- Based on SciQuest’s deal announcement, we estimate Spend Radar’s 2012 total revenue at slightly below $2 million
- If our sources are accurate and Spend Radar has 200 customers, the annual revenue per customer would be approximately $10,000
- Even if our sources are off by 100% and Spend Radar has 100 customers, the annual revenue per customer would be approximately $20,000
- Based upon a closing price of $18.43 per SciQuest share on October 3rd, SciQuest may pay up to $17.65 million (and possibly more) for Spend Radar
- $17.65 million = the announced acquisition price of $10,087,000 plus a potential earnout of $7,565,000 using $18.43/share (final value TBD as SciQuest’s stock will likely move over the next five quarters)
- Assuming Spend Radar hits its revenue targets in Q4, 2012 and in 2013 and maximizes its earnout, SciQuest paid an 8.8x revenue multiple, pricey by most standards, particularly for a start-up with a heavy reliance on channel sales (of course, maximizing its earnout is not guaranteed – AECSoft did not maximize its earnout in 2011)
- It appears as though Spend Radar will operate independently in 2013
- Many other companies in this space have paid full fare for their acquisitions but have benefited from the acquisitions over the long-term
It is an interesting deal to be certain and one that adds another important tool to SciQuest’s toolbox. The deal also raises many interesting questions that we will try to address in Ardent Partners’ upcoming report on SciQuest’s recent deals.
Andrew Bartolini is the Chief Research Officer at Ardent Partners, an industry analyst firm focused on supply management (i.e. sourcing, procurement, accounts payable).
Disclosures: SciQuest is a client of Ardent Partners. The author holds no financial investments in any company mentioned in this article.