Coupa's acquisition of Spend360: Implications for Procurement and Sourcing Technology

Earlier this week, Nasdaq listed, Coupa Software (COUP) announced its acquisition of the U.K. based spend analysis specialist Spend360 which has large global companies such as HSBC, BBC Worldwide, Nissan, and BAE Systems as its clients.

As per the official press release on Coupa's website, the acquisition is aimed at enabling effective classification of spend data by leveraging modern and innovative technologies. Currently, this is done using rule-based classification processes with frequent manual intervention to ensure accuracy.

A closer look at Spend360

At a high level, the key services/solutions provided by Spend360 include:

• Spend Analysis
• Data Cleansing
• Due Diligence, and 
• Supplier Compliance

In combination, Spend360 specializes in enabling organizations of all sizes to collect, enrich, and classify spend data accurately and in turn drive savings to the bottom line by leveraging the generated insights.

An average multi-national tends to have 60 percent of its spend under management i.e. visible spend. More than 20 percent of this spend is often categorized incorrectly. These inaccuracies lead to leakage in the form of duplicate invoicing, high invoice processing costs, erroneous supplier classification/consolidation, ineffective procurement resource utilization, etc. The existing outdated procurement platforms, and legacy IT systems make it difficult to identify and eliminate these issues.

Spend360 eliminates such issues by directly sourcing data from multiple source systems such as ERP and P2P, and applying artificial intelligence to automatically classify the data correctly. The intermediate quality assurance (with some human intervention - as per information available in some of the presentations online), and automated learning capability which makes the automated classification progressively leads to 15 to 20 percent of savings over a period of time. The improved classification also has a positive impact on downstream activities such as auctions, inventory management, and supplier relationship and risk management.

Some Key Insights

• Spend360, as per the information available on its website, has more than 70 billion pounds spend under analysis. 
• For security purposes, the data never leaves the UK.
• Gartner Magic Quadrant for Strategic Sourcing Application Suites mentioned that Scanmarket
  outsources spend cleansing and data enhancement services to London-based Spend360.
•  Spend360 was ranked #1 in a recent report on procurement intelligence by Capgemini, and was recognized amongst the top 5 spend analysis vendors across the world by Gartner

Implications for Procurement and Sourcing Technology Market

This is the 5th acquisition made by Coupa over a period of two years. Earlier in Feb 2015, Coupa acquired enterprise procurement software company ZenPurchase, followed by e-invoicing vendor InvoiceSmash, open booking vendor TripScanner, and the modern contract management vendor Contractually.

Fig. Coupa's Share Prices over the Past 3 Months

While all of the earlier acquisitions have their own role to play in strengthening the overall Coupa offering, contract management and spend analysis capabilities can be a big differentiator from a Source-to-Pay and/or Procure-to-Pay perspective. Coupa's acquisition of Spend360, while it may seem like overlapping/redundant to some, is like a major contract lifecycle management company acquiring a nice contract discovery company like Seal Software. In both scenarios, your ability to achieve the ROI from your technology investments is significantly amplified by the richness of information available in your system.

In the light of the fact that Spend360 has 400+ global clients, about a 100 in North America alone, it clearly seems like two high growth companies merging together. If nothing it should enable Coupa to give some boost to its share prices which have fallen significantly since its IPO in October last year.

The success however will lie in leveraging the complimentary strengths and being able to overcome the ground level issues of difference in culture, approach, and technology stacks.

10 Key Contract Management Stats

1. As per IACCM research, "Poor Contract Management Costs Companies 9% — Bottom Line"

2. Most of the large organizations have anywhere between 20,000 to 40,000 contracts on an average [Source: Price Waterhouse Coopers]

3. 65% of major projects 'fail' or severely under-perform, with average cost overrun of 80%. [Source: 2013 study by the European Commission]

4. On an average more than 10 percent of all executed contracts are lost due to file-and-forget tendency.

5. As per Gartner, Contract Lifecycle Management (CLM) has the potential to become USD 2.8 bn+ solution market in the U.S. alone.

6.  Ineffective governance of provider contracts can cause value leakage ranging from 17% to 40%. [Source: KPMG Research]

7. As per an EY report, an organization can save anywhere between 5 to 15 percent of contract spend by creating commercially efficient contracts and managing them effectively throughout the operation lifecycle and minimizing the waste in business activities with suppliers.

8. Top performing organizations have an average cycle time of 8 days for contract review and approval as against laggards which tend to have an average cycle time of 47 days. [Source: Aberdeen Group]

9. 60 percent of corporate litigation are related to contract disputes. [Source: Unknown]

10. Despite all of the above, less than 20 percent procurement departments currently deploy an automated, digital contract authoring tool. The number is higher for contract repository installations and as per various estimations stands anywhere between 40 to 50 percent. However, the adoption of technology for contract enforcement is less than 10 percent.