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Accenture Shakes Up Procurement BPO Market with Acquisition of Procurian

Accenture announced today that it is to acquire Procurian, the largest procurement BPO pureplay globally, for $375m. Around Procurian 780 employees are expected to join Accenture on completion of the transaction, which is expected to close by the end of 2013.

This is a major consolidation of the procurement BPO vendor landscape, with, by NelsonHall’s estimate, the number two player globally buying up the number three player.

What does this mean for Accenture?

As well as making Accenture by far the largest procurement BPO vendor globally, Procurian will bring in industry capabilities in a range of sectors including discrete manufacturing and consumer goods, extending Accenture's own industry capabilities in procurement BPO in the financial services and E&U sectors.

Procurian will also strengthen and broaden Accenture’s strategic sourcing and category management expertise bringing in both skill and scale for source-to-contract (S2C) engagements. Procurian also has technology assets, which include proprietary tools for contract management and supplier performance management tools and its SavingsLink tool for measuring and analyzing forecasted and realized savings.

This is not Accenture’s first investment in this space: three years ago this month, it acquired Ariba’s strategic sourcing practice (the former FreeMarkets, based not far from Procurian) for $51m. Of course Ariba is now part of SAP, with whom Accenture is getting even closer (look at recent partnership announcements).

The acquisition of Procurian will position Accenture very strongly, particularly in the U.S., for multi-tower back-office opportunities spanning F&A and procurement – although examples of these being outsourced simultaneously are few, NelsonHall has seen much greater buy-side interest in the last two years around the concept of a combined F&A and procurement outsource. And it presents Accenture with a great opportunity to cross-sell S2C services into its existing F&A clients, particularly in those sectors where Procurian has client references.

Procurian will also bring to Accenture a client base that includes some organizations which present opportunities for cross-selling, in particular services which can help them take costs out from other corporate functions.

Procurian has been nurturing industry-specific client communities, and at times this has helped secure new deals. This practice will doubtless continue at Accenture.

What does this mean for other Procurement BPO service providers?

Clearly the ultimate intention of majority stakeholder (85%) ICG has been to sell Procurian (by far its largest investment) when the time and money was right: the question was always when?

ICG has got a great price for Procurian: Procurian generated revenue of $140m in 2012 and an operating margin of 12.3% (down from 16.4% in 2011 due to start-up costs associated with the Zurich contract), so based on 2012 data Accenture is paying a whopping 29xEBIT or 3x revenue. Procurian also has a term debt of around $23m.

Accenture would appear to have won in a bidding war. It is not difficult to guess which other vendors would have been interested.

By far Procurian’s largest client is Zurich (contributed around 15% of its revenue in H1 2013), where it is providing services in partnership with Genpact, who is providing the procurement transaction processing. And of course, Zurich is also a major Accenture client, particularly for application management services. It doesn’t take a genius to see that Accenture, who lost out to Procurian/ Genpact in the procurement BPO deal, will be taking a very close interest at this engagement for any opportunity to expand into the P2P space.

Another vendor who will be discomfited by this acquisition will be Capgemini, who only recently won a contract at Ferro in partnership with Procurian. And of course, among the swings and roundabouts, we must not forget that Capgemini ousted Procurian at Kraft and Procurian (again with Genpact) beat Accenture back in 2006 at Kimberly Clark, in what at the time was a landmark outsource.

So what are other vendors with F&A BPO capabilities doing in order to build or expand sourcing and category management capabilities, which require both specialist skills and market knowledge?

Genpact has been trying to ‘go it alone’. But this is not easy and it cannot be done fast: one major challenge is a general shortage of sourcing talent; another is that strategic sourcing and category management is not easily offshorable. It is an approach that Infosys tried to take, before it acquired Portland Group. At the time, Infosys indicated that further regional acquisitions were a possibility.

Capgemini’s major investment to date in procurement BPO (ignoring its separate supply chain BPO business) has been its acquisition of IBX which brought in a platform and network – but this has mainly led to SaaS rather than BPO wins.

Now that Procurian has been snapped up, should we expect F&A vendors looking to beef up their procurement BPO capabilities to look at other sourcing specialists? The truth is, there are not many out there (illustrative that this is a specialist capability), and the few there are do not have the scale or geographical reach that Procurian has continued to develop over the years.  It has itself recently been making niche acquisitions bringing in very specialist capabilities. In 2012, for example Procurian acquired MediaIQ for capabilities in media audits (its largest acquisition to date at a total consideration of $175m, it will possibly complement Accenture Interactive) and UAI, an energy procurement specialist, for $6.7m.

NelsonHall does not speculate on specific vendor names (at least not in print!) but should we expect further M&A activity in the next 18 months? Probably.

What does this mean for the Procurement BPO market?

Under Mike Salvino’s leadership Accenture BPO has been on an investment spree. For example, Accenture Credit Services, based on the acquisition of Zenta, is about to be boosted with the acquisition of Mortgage Cadence. And earlier this summer, Accenture announced the launch of Accenture Post-Trade Processing Services in partnership with Broadridge with Societe Generale as the foundation client. Accenture Credit Services has been successful since its launch in 2011, and the timing of the launch of Accenture Post-Trade Processing Services is opportune in Europe.

Accenture’s significant investment in boosting its Procurement BPO business indicates its confidence in the likely continued – even accelerated - growth of this market over the next few years. And Accenture generally gets its investments right.

We have seen organizations frustrated by the lack of service providers who possess deep and broad capabilities that span S2C and P2P – in our view this has been a major impediment to market maturity. Accenture now genuinely has across multiple sectors and major regions.

We have already referred to increased market interest in combining procurement with F&A – this move by Accenture might spur some of that interest into action.

Finally, expect to see a much stronger focus at Accenture Procurement Service on how the application of analytics across the sourcing and procurement lifecycle can deliver business outcomes to clients that go far beyond simply measuring spend compliance or assist in demand forecasting.

We have long said that one hallmark of excellence in an F&A BPO vendor is their application of analytics for both process insights and business insights: we expect to see analytics also becoming increasingly valuable in procurement BPO.

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