The signals are good in the flurry of mergers and acquisitions among dot coms. Companies are snapping up complementary businesses in order to add features to their products, beef up internal operations and expand their product lines. Merger and acquisition activity has been accelerating in the procurement automation industry. Here's a sampling of some of the recent deals.
Agile Software Corporation, maker of applications that help manufacturers automate tasks such as the ECO (engineering change order) process, acquired Digital Market, designer of RFQ software, for $89 million in stock and $20 million in cash.
VerticalNet, parent company of 55+ vertical online markeplaces, acquired NECX, a well-known Internet electronic components and computer products distributor, for $95 million in stock and $10 million in cash.
Commerce One, an MRO requisition software and online marketplace provider, acquired CommerceBid.com for its online auction software. The deal was valued at $180 million, of which $4.5 million was in cash.
I2, a leader in supply chain management systems, announced its intention to purchase Aspect Development, maker of component management systems for manufacturers, and Supplybase Inc., a sourcing Web site that lists more than 100,000 suppliers for custom parts and assemblies. The Aspect Development all-stock deal was valued at $9.3 billion when it was announced in March.
SBC Communications, the No. 1 local phone company in the United States and parent of Southwestern Bell, Pacific Bell and Ameritech, unveiled plans to acquire Sterling Commerce, a leading company in EDI software systems, for $3.9 billion in cash.
Mergers and acquisitions are usually unwelcome events for business executives and purchasing and supply management professionals. When the supplier base for a particular product or service narrows, prices can typically be expected to rise for those products or services because of reduced competition.
These procurement automation mergers and acquisitions, however, are birds of a different color. Companies are snapping up complementary businesses in order to add features to their products, beef up internal operations and expand their product lines. And there¹s more good news. Smaller, more financially risky start-ups are being absorbed into larger, more stable firms, and buying companies are finally getting procurement automation suppliers that can streamline more than one purchasing process.
Take another look at the list of mergers and acquisitions. Note that not a single deal is between direct competitors. The procurement automation market is still very youthful, and the focus is on finding the right feature sets and product mixes to offer. Solutions providers frequently lack the resources, bandwidth, time or expertise needed to build the things they need. Companies often solve this problem by purchasing businesses that have already developed the desired technology, product or service.
The second, less-obvious benefit of this type of merger and acquisition activity is that the resulting combinations are more likely to thrive together than they would as independent companies. Take, for example, the Digital Market/Agile deal. I¹ve seen an in-depth demonstration of Digital Market¹s RFQ application, and it was absolutely terrific. But Digital Market is a small start-up.
An interested purchaser who works for a company that thrives on technology from the bleeding edge may have no trouble getting approval to buy software from a company like Digital Market. Those of us who work for more conservative companies, however, may have a great deal more difficulty convincing our IS departments and executive management to spend hundreds of thousands of dollars on software from a small, unproven supplier.