Note: Andrew Bartolini contributed to this article.

Late last month, UK-based Proactis announced its plan to acquire US-based Intesource in a deal totaling $3.9 million (of which Proactis will fund roughly $2.9 million in new funding; it is expected that approximately $1 million in cash will be taken from Intesource’s coffers by the sellers at deal closing) and to be completed in the next few weeks. Known for its Procure-to-Pay (P2P) systems, Proactis hopes to expand its presence in the US market and synergize its resources with Intesource, a small, but established provider of cloud-based sourcing solutions and managed services. The deal will place Proactis more directly into the strategic sourcing market (particularly in the retail industry, which represents the large majority of Intesource’s 25 customers) and provide an opportunity for it to build upon Intesource’s expertise in sourcing. While Proactis does have strategic sourcing solutions, there should be opportunities to cross-sell each other’s solutions/services into the other’s customer base.

Intesource is a small provider of cloud-based sourcing solutions and sourcing services that has a strong client base in the retail vertical, specifically grocery stores. Its clients include Wegman’s, Meijer and Rite Aid but also companies like PF Chang’s and Washington University. Intesource has its own proprietary and leads with an eSourcing software solution which is surprising solid. It also offers a contract repository, a project anagement tool for eSourcing and some category and supplier market services.

One of Intesource’s strengths is that it delivers its eSourcing solution as a managed service making it easy for its clients to run a substantial number of events. But while Intesource’s delivery model made it a client favorite, its operation as a services company instead of a cloud-based solutions company depressed its valuation significantly and eliminated it from consideration by some potential buyers. Additionally Intesource’s primary investor was a private equity fund at the end of its term that was looking to close down after a very successful run. Intesource was its final investment. These things combined to enable Proactis to get a great deal on a small firm with a solid US customer base, solution, sourcing expertise, and delivery model at a price of less than 1 times revenue.

This is the second acquisition for Proactis in 2014. In January, it purchased EGS, it says to bolster its public sector segment. Simon Dadswell, Marketing Director for Proactis, believes that acquiring Intesource will give Proactis “better scale as part of an organic and acquisitive strategy for developing a much more profitable and growing business.” Proactis also gains a better footprint in the US market, where it hopes to leverage Intesource’s sourcing capabilities and cross-sell to its existing customers.

“We understand their market. We understand what they’re doing,” says Dadswell. “They’re delivering a high-quality service underpinned by good technology. We’re extending our product and solution footprint via Intesource as well as some additional clients in some very focused segments. So, [it’s] complementary,” says Dadswell, “and I think it’s business as usual for both sides.”Dadswell went on to say that Proactis is “committed to the long-term customer relationships that Intesource has established.”

That’s fine by Steve Whiteman, CEO of Intesource, who plans to stay on with the company for at least the next six months. “I think one of our major motivations was finding a good home for our people, as well as finding a good home for our customers, and tying them with an organization that wanted to see us continuing to move forward with our own strategy. After speaking with Proactis CEO, Rod Jones, Whiteman felt that the two could make this deal happen. “I think there’s a consistency in our philosophy in how to run a company and treat employees and treat customers.  And I think there’s a good fit from a product perspective, so we started talking and it’s evolved.”

Under the proposed deal, the majority of Intesource’s 32 employees are expected to remain with the company and continue their work with their existing customers. And they plan to hire. “They want us to grow and expand distribution,” adds Whiteman. “So, we hope to be hiring in those areas, particularly distribution, as we go forward.”

Proactis has yet formalize their go-to-market strategy for Intesource. But for now, Whiteman believes that Intesource will be “working pretty independently, except for sharing opportunities with the Proactis US team.” Moreover, he thinks that “[Proactis is] going to rely heavily on [Intesource] to really drive their US presence and strategy.”

The two current Intesource customers we interviewed are happy with the announcement and see the potential for the two companies to leverage each other’s strengths. According to one user, “Intesource is that sourcing arm that can be very nimble. You’re essentially outsourcing all those service capabilities. They’re experts in that area – they are a very efficient organization.” But, “when I think about Proactis, and I think about how they’re going to fit, I think they’re probably the most focused on  eProcurement and catalog management. I think it fits really nicely in there.”

Added a second Intesource client, “We love them. They’re great. They’re very responsive. They’ve very customer-oriented. When we ask for a change in some of the specs or the way an event is setup, it gets done. They’re one of the best suppliers I’ve ever dealt with.”

Intesource’s 2013 revenues totaled slightly more than $5 million, with an operating profit of $610,000. Proactis estimates that following the acquisition, Intesource annual revenues will total more than $4.5 million. By comparison, Proactis’ 2013 revenue was 8.04 million GBP or roughly $13.6 million.

Completion of the deal is subject to the approval of various stakeholders on both sides and confirmation from US regulatory bodies.  All parties are optimistic that the acquisition will be completed later this month.

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