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WNS Moves from P2P to Source-to-Pay with Denali Sourcing Services

WNS has just closed its acquisition of Denali Sourcing Services.  An investment of around $40m, funded primarily with long-term debt, this is WNS’ largest acquisition in a decade (since that of Marketics Technologies, which enhanced its ability to offer offshore analytics services in 2007). And it is paying over 2x revenues for Denali Sourcing Services. So this is more than a tuck-in acquisition for WNS.

Who is Denali Sourcing Services?

Denali Sourcing Services was one arm of the Denali Group (other entities such as Denali Advisory and Denali recruitment have not been acquired by WNS).

The majority (~80%) of Denali Sourcing Services’ revenues are derived from largely recurring services within multi-year contracts. Within this, approximately:

  • 20% of recurring revenues are derived from enabling services, typically category management enablement, where it provides ongoing spend analytics, training and coaching around category management, including on-demand access to advice from Denali’s specialist category managers. Denali Sourcing Services also owns the Category Strategy Network which enables organizations to tap into a knowledge network for on-demand category expertise
  • 80% of recurring revenues are derived from sourcing, contracting & contract management, and, to a lesser extent supplier management services including some transactional procurement.

Around 95% of its revenues are from U.S. based organizations.

Denali Sourcing Services has ~200 personnel. Its delivery structure includes:

  • Centers in the U.S. in Seattle, Pittsburgh, and the Bay area, accounting for ~50% of delivery personnel
  • A center in Pune, India, providing elements of delivery and support all geos
  • A center in Istanbul, providing all delivery to the European market. Personnel from this center visit client sites as required. It also has a few personnel on client site in Amsterdam and Dublin
  • A small center in Shanghai.

Denali Sourcing Services’ delivery is supported by its SmarTrak platform which it looks to use to embed its operating model into client companies. SmarTrak is used by procurement in support of stakeholder management, provides elements of workflow around the procurement process and supports:

  • Intake and management of procurement requests
  • Tracking the progress of request
  • Tracking operational parameters such as capacity, productivity and cycle time
  • Measuring changes in spend under management.

Denali Sourcing Services also brings in its spend analytics methodology, currently underpinned by Tableau and Excel-based models.

So why?

Well, the immediate and obvious takeaway is that Denali Sourcing Services expands WNS’ existing current capabilities beyond transaction processing within P2P into services that span sourcing through to pay.

Denali Sourcing Services brings in a specialist capability which remains in short supply.

And WNS and Denali Sourcing Services have worked together already.

WNS had been under increasing pressure from some of its P2P clients to expand its services upstream and began working with Denali Sourcing Services about three years ago. In one example, the companies jointly bid on, and won a source-to-pay BPS contract in the U.S. The client was previously using another BPS provider for accounts payable, with source-to-contract activities being kept 100% in-house. Within this contract, Denali Sourcing Services provides category management, sourcing, and contracting with WNS providing procure-to-pay services. The contract started with all indirect categories, including professional services, construction, travel, IT, and marketing covering spend of ~$2.5bn; over an 18-month period this has expanded to include direct spend around some raw materials, including logistics and MRO, taking the spend under management to ~$5bn.

F&A has been one of WNS’ fastest growing areas recently and now represents over 21% of its total revenues: this is a logical expansion of the portfolio.

Like Value Edge has been doing, Denali Sourcing Services will immediately boost WNS’ revenues in the U.S., which is fast becoming as significant a revenue producer for WNS as the U.K. And it brings in access to clients in sectors such as E&U and high-tech and FS.

So as well as being a significant expansion of WNS’ portfolio into a service that generates recurring revenues, Denali Sourcing Services will bring in a new client base, in a new geography, and in new sectors, in line with WNS’ ambition to reduce its dependence on the U.K. and the insurance sector.

And what next?

WNS is setting up an independent horizontal procurement business unit, based on Denali Sourcing Services, headed up by Denali Sourcing Services founder Alpar Kamber. We may thus see WNS start reporting revenues for procurement services separately from F&A.

While the short-term badging of the acquired entity remains undecided, Denali Sourcing Services will retain the Denali name (Denali Advisory is undergoing a rebranding exercise).

WNS is looking to grow the Denali Sourcing Services business by >20% per annum, with strong emphases on

  • Doing “large” deals combining S2P and P2P services
  • Expanding the Denali Sourcing Services footprint in Europe and APAC. At present, ~95% of Denali Sourcing Services business is derived from the U.S. Significantly, Alpar Kamber has moved to London
  • Cross-selling S2P upstream into WNS accounts initially and subsequently selling WNS’ P2P downstream into Denali accounts.

WNS and Denali Sourcing Services are currently in discussion with a number of prospects across the insurance, travel & hospitality, banking, and manufacturing sectors. Whereas with F&A, WN has been taking an industry-specific approach, WNS is viewing procurement more as a horizontal capability, certainly initially while the bulk of the activity lies in indirect procurement.

WNS is looking enhance Denali Sourcing Services’ analytics capability and may develop its own tool or partner.

Significantly – and sensibly we feel - WNS has no immediate plans to offer a wider platform-based procurement service. Instead, the company will increasingly provide enablement services and bolt-on solutions around the main procurement platforms such as Ariba and Coupa which client organizations are already likely to have.

Elsewhere, a key focus is on building “communities of practice” around categories including marketing, facilities, IT, construction, and professional services.

Denali Sourcing Services will continue with its existing delivery centers, and is looking to scale particularly in support of the European and Asian markets.

Conclusions

Procurement BPS is a market where growth has not quite lived up to expectations in recent years. One of the factors hampering its growth has been a lack of choice of vendors possessing real source-to-pay capabilities. WNS is tackling this head on.

At first glance, this appears an audacious move by WNS: its largest acquisition in a decade, and bringing in a new capability where the client bases and sector strengths are complementary rather than overlapping.

But the selection of Denali Sourcing Services and the approach being taken to its integration indicates this is a move that has been extremely well thought through by WNS, one that will immediately expand its portfolio, extending the value chain for existing F&A clients, in a service where specialist expertise is in short supply, and for which it already has strong client demand.

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