Ardent Analysis: Perfect Fit? Perfect Commerce Makes Bold Offer to Acquire Hubwoo

Some exciting news in the supply management world from earlier this month – Virginia-based spend management solution provider, Perfect Commerce, announced that it would tender a bid on Paris-based (but US-managed) supply management and business networks solution provider, Hubwoo (Ticker: HBW.PA – Paris), for 100% share of the company, valued at €0.19 a share. This is an all cash offer that equates to roughly $26 million dollars based upon the fully-diluted share count of 136,590,527 that Hubwoo disclosed in its “Filing of a Draft Information Note.“

Deal Background: At the time of the announcement, the offer represented a 36% premium above the 20-day moving average of Hubwoo’s stock price. The announcement noted that Hubwoo’s Board of Directors unanimously recommended accepting the offer and that, pending approval by the French governing group, Autorité des Marchés Financiers (AMF), the deal is expected to close by the end of the third quarter in 2015. The deal also hinges on at least two-thirds of Hubwoo’s shareholders accepting the offer and selling their shares; two of Hubwoo’s largest shareholders, comprising ~38.2% of all shares, have already agreed to do so.

Deal Analysis: From a solution footprint standpoint, Perfect and Hubwoo have complementary solution offerings and generally unique customer lists. What is most similar are their histories and customer orientations. To start, both Perfect and Hubwoo can trace their solution lineages to the Commerce One family tree. Commerce One, my one-time employer, was a one-time market leader (albeit only during the initial B2B internet boom of the late 1990’s) that had an interesting vision of a network-based economy, but failed soon after the internet bubble burst.

In the aftermath of the internet crash, Perfect Commerce’s leadership (which began at the Commerce One Network, eScout) rolled up a series of struggling competitors including its namesake and operated for a few years before effectively auctioning itself to the market. Perfect was acquired by CorMine, a procurement services company that was known for its MRO services, in 2007. Perfect is a full-suite provider of supply management technologies (source-to-settle) that also operates a business network and a large services business. While it is not a huge player in the larger technology market, over the past eight years, Perfect, under the leadership of its CEO, Hamp Wall has continued to grow and carve out a niche in the market (large, more complex, global procurement organizations). Perfect does not report its revenues publicly and it has been able to get financing for an all-cash deal from Goldman Sachs which indicates Goldman’s belief in Perfect’s leadership and the overall deal. If the acquisition closes, Perfect’s size and impact in the market will shift accordingly (more on that below).

Hubwoo, meanwhile, is the operator of one of the largest business networks. From its initial start as a combination of different Commerce One marketplaces that then merged and transitioned to become an SAP partner and provider of a cloud-based set of SAP solutions that linked to a network platform to the operator of one of the largest global business networks, Hubwoo has shown itself to be a very adaptable and resilient company with an ability to evolve its business model to the needs and opportunities of the time. And, to reiterate, Hubwoo operates one of the largest business networks out there from a pure transactional volume perspective. It had been making great traction with their partnership with SAP, but when SAP decided to acquire Ariba in 2012, Hubwoo was left without a strategic partner to buttress its offerings in the market. To Hubwoo’s credit, it has been adept at staying proactive in the marketplace. But, the challenges of operating a network without the applications, or without the on-ramp to get onto the network has been somewhat of a challenge for Hubwoo, even with their more recent partnership with GEP. It should be noted that beyond its business network, Hubwoo does have some proprietary invoicing solutions, Invoice Smarter, which includes a series of rules established by the buyer. It also has a match-and-approve functionality that stops invoices with errors or those that fail to meet certain rules or thresholds from being generated and sent.

Ardent Analysis: Perfect’s bid for Hubwoo is at once both bold and sensible. As the operator of one of the largest business networks, Hubwoo is an attractive asset with an extremely low valuation and a customer base comprised, primarily of large, global enterprises. And yet, this customer base is one that is so directly tied to Hubwoo’s former partnership with SAP that customer renewals have been more difficult, as evidenced by Hubwoo’s revenues over the past few years.

If Perfect can convert a reasonable share of Hubwoo’s current customers from SAP to its own solutions this deal is an out and out home run. And while that is not a given, Hubwoo’s goodwill with its customers and Perfect’s competitive offering make it certainly possible. Even if Perfect struggles to convert Hubwoo’s current customers, this deal can still be a big win if it is able to leverage the combined strengths of its solutions and the combined size of its networks to compete more prominently in the large suite marketplace. Additionally, the acquisition would give Perfect a bigger presence in Europe, and a new set of companies to target with its services.

We believe that there were several other companies that were interested in acquiring Hubwoo, but ultimately we do not expect any of them to step up, even if it would make sense for several of them to do so. Let’s hypothesize about this for a minute.

In many respects, we believe that SAP would have been the most logical buyer of Hubwoo and that for a relatively small investment, it could eliminate one competitor in the large enterprise market and all but guarantee a conversion of Hubwoo’s main customers to the Ariba/SAP solutions and ultimately to its own business network.
Hubwoo may also have been an interesting acquisition for a company like SciQuest which has its own supply management suite and is looking for stronger in-roads to the corporate market.
Basware is another company that could have been attracted to Hubwoo, based on the financial elements of the deal as much as anything else. But in recent years, they have been less aggressive on the M&A front.
While Coupa and Tradeshift could each benefit from the transactional heft of Hubwoo’s Business Network, these well-funded providers are both better served by focusing on building out their own networks.

Hubwoo has committed to the offer made by Perfect Commerce, and we expect that it will be the one that goes through.

Disclosures: All of the supply management solution providers mentioned in this article, including Hubwoo and Perfect, are clients of Ardent Partners. The author holds no financial investments in any company mentioned in this article.

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