SECOND QUARTER 2013

E-PROCUREMENT OUTLOOK: HARVEST TIME?

The enterprise application software mar-ket, predicted to attain a CAGR of 6.3% for the period between 2011-2016 and to reach USD 158 billion in revenues by 2016, is one of few markets that remain unaf-fected by the global slowdown. One look at the financial data of the giants in the segment and it’s no wonder the forecasts are so optimistic: the CAGR of SAP and Oracle was 16% between 2009 and 2012.

A closer look at the software development market shows that some subsegments are growing even faster. Supply chain man-agement is expected to rise from USD 7.7 billion to 11.9 billion in 2016, resulting in a 5-year CAGR of 9%. Companies recognize that cutting purchasing costs and facilitat-ing sourcing and procurement processes will give them an edge. In spite of the economic crisis, or perhaps because of it, electronic procurement is a booming business. That is why e-procurement spe-cialists attract the attention of the largest software players.

In 2012 SAP decided to acquire Ariba Inc. – the world’s e-procurement leader, for USD 4.3 billion. Ariba, founded in 1996, provides spending control services for 200,000 companies including large cor-porations, SMEs, and over 90 companies in the Fortune 100. The deal’s EV/EBITDA multiple was 36.1x, beating the market median of 9x for software houses. Earlier

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last year IBM had completed its acquisi-tion of Emptoris, another large company in this segment, at deal multiples rumored to be in the high double-digits.

The biggest players were not the only companies looking for opportunities to enter the e-procurement market. In the same year Informatica Software, a Califor-nia-based enterprise, announced its ac-quisition of Heiler Software, an e-procure-ment software company headquartered in Germany with 150 employees, for USD 104 million (88 million EV). The company’s market capitalization before the acquisi-tion totalled about USD 44 million in Sep-tember 2012, implying a control premium of 100%.

Yet the hype for acquiring e-procurement companies had started much earlier, in the early noughts. The first to foresee prom-ise in e-procurement solutions was SAP, which acquired Emaro in 2002. In 2006, anticipating the demand for such services, Proactis, one of today’s small-cap lead-ers in spending control software, carried out an acquisition of a small company, Requisoft, for GBP 0.8 million. Basware, a Finland-based company whose 2012 sales amounted to EUR 113.7 million, is also a good study of investors’ interest in en-terprise resource planning systems. The company developed through acquisitions of smaller competitors beginning in 2005.

By seven years later, Basware had pur-chased eight companies in Europe and one in Australia. Currently it’s traded at 15.9 EV/EBITDA – the highest multiple since it went public in 2000. In the last 10 years its shares, listed on the Helsinki Stock Ex-change, showed an astonishing 19% CAGR (while Ariba’s CAGR before it was delisted in 2012 amounted to 21% over the last 10 years).

Recently, even European Union officials have seen the benefits of the e-procure-ment sector. According to estimates the procurement market of the entire EU is worth more than EUR 2 trillion. Public en-tities that have implemented e-procure-ment have cut their expenses by 5-20%, resulting in estimated savings between EUR 100 billion and 400 billion per year within the European Union public struc-tures. Savings may provide a substantial cash injection for governments struggling with high deficits, not only in the EU but globally. But monetary savings are not the only driver for adopting e-procurement. E-procurement maximizes the efficiency of public expenditure by transparency and reduction of lead times. Easier access to public procurement contracts results in a higher rate of SME-awarded contracts.

KONEPS, which stands for Korea On-Line E-procurement System, is probably one of the most sophisticated public e-procure-

Analysis shows huge multiples for certain software sectors

ANALYSIS

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E-PROCUREMENT (CONTINUED FROM PAGE 1)

ment systems in the world and was devised by the South Korean Public Procurement Service. The sys-tem works so well that other countries, especially in Asia, purchased licenses to use it (including Vietnam and Mongolia, and farther afield Tunisia and Costa Rica) at an estimated annual cost of USD 4-5 million. According to PPS (Public Procurement Service) since the introduction of KONEPS in 2002 the percentage of its procurements awarded to SMEs rose from 55% to 75%. KONEPS has contributed to stimulation of com-petition and innovation among South Korean enter-prises, triggering economic growth and greater access to paths to prosperity. Looking at KONEP’s success, EU officials want to take more advantage of e-procure-ment by making it a standard by mid-2016.

Currently there are around 30 significant e-procure-ment solution providers around the world but most of them operate only regionally within their closest geographical area. The largest number are located in North America, Western Europe, and the UK, respec-tively. The only company that offers its services on all continents is SAP.

The market is fragmented and solid consolidation is needed to achieve economies of scale. Small com-panies have to merge with others or be acquired by larger companies in order to gain access to a greater number of prospective clients. At the same time Eu-ropean Union officials, as well as policymakers from other countries, have shown interest in switching from traditional procurement processes to electronic procurement. The demand for services creates an emergence of a highly interesting market for com-panies that can adapt quickly to new circumstances and have considerable cash resources to finance the acquisitions.

Clairfield International is currently involved in the ac-quisition process of a European e-procurement solu-tions software company, the leading player in its lo-cal market. The transaction is expected to be closed in H1 2013. Clairfield’s TMT team has solid expertise in enterprise application software, having advised on projects involving national governments and big names such as ADP, as well as local players such as BCC in Poland (a SAP Gold Partner), and Omnikles in France. With our knowledge of the market and access to players across the globe, we see many opportuni-ties for our clients as the enterprise software market consolidates.

Piotr Kolodziejczyk is a partner at Clairfield Poland and leads the Clairfield TMT practice.

Lukasz Skonieczny is an analyst at Clairfield Poland.

Revenues of key business software developers (in USD billion)

11 12 14 16

2327

36 3734

39

5053

0

10

20

30

40

50

60

2009 2010 2011 2012

Key business software developers' revenues (bln S)

SAP ORACLE SAP & ORACLE

0

5

10

15

20

25

2008 2009 2010 2011 2012 2013E 2014E 2015E

Other

Supply Chain Management

Enterprise Resource Planning

Customer Relationship Management

Digital Content Creation

Office Suite

Content, Communication and Collaboration

Global software-as-a-service market in USD billions

Source: IDC and CIBC World Markets

Source: Thomson Reuters

SELECTED RECENT TRANSACTIONS

Client Transaction overview CounterpartyHomelux, a UK-based global supplier of tile accessories to the DIY and professional market was sold to QEP Co. Inc., a world-leading manufacturer and supplier of tiling equipment, flooring tools, and accessories based in the US. The Homelux product portfolio includes extruded plastic and metal tile trims. The transaction, which involved a demerger and complex restructuring, was advised by Clairfield International in the UK.

The Tieto Corporation, headquartered in Helsinki, is one of the leading providers of IT services and product engineering in Eu-rope. The company divested Tieto Deutschland GmbH to the Munich-based Aurelius Group. The transaction includes the system integration and consultancy, healthcare, and product engineering business divisions with about 900 employees in Germany, the Netherlands, Poland and India. Clairfield International Germany advised Tieto.

ADB Airfield Solutions is the worldwide leader in airfield ground lighting products, systems and solutions, serving over 2000 airports in more than 175 countries. ADB Airfield Solutions structured a secondary LBO sponsored by PAI Partners in order to pursue international development through organic growth and selective acquisitions. PAI Partners is a private equity firm with EUR 4 billion under management. Clairfield International in France advised the management of ADB Airfield Solutions.

Match and More is a Dutch provider of secondment and training services in the financial industry with a portfolio of more than 200 financial specialists working for the majority of the Dutch Rabobank branches. Its secondment and freelance mediation activities were acquired by Talent & Pro. Talent & Pro thus strengthens its market position as one of the largest secondment pro-viders for the financial services industry in the Netherlands. Clairfield International in the Netherlands advised Match and More.

Quad, based in Queensland, develops and provides a cloud-based education administration application to independent schools throughout Australia. WebISIS, the acquiring entity, is an investment entity related to the CountryNet IT Solutions business that provides software to support data collection and administration in schools. The directors of Quad were seeking an exit and ap-pointed Clairfield Australia to manage the exit on behalf of the shareholders.

A consortium led by Macquarie Infrastructure and Real Assets (MIRA) acquired a minority stake in Jihomoravská plynárenská, a regional supplier of gas and electricity in the Czech Republic, from E.ON Group. The acquisition was part of a complex transaction in which MIRA acquired approximately 35% of RWE Grid Holding, a.s., which will act as the holding company for four regional gas distribution networks in the Czech Republic. Clairfield International in the Czech Republic advised Macquarie.

Clairfield International in Charlotte acted as financial advisor to Kids Care Dental Group, a leading pediatric dental platform in Northern California, in its recapitalization with Chicago-based, Sterling Partners. Kids Care Dental Group is the premier pediatric dental practice in the greater Sacramento area. Kids Care provides a full range of fundamental oral care services, including pedi-atric dentistry, oral surgery, and orthodontics.

The founding shareholders of Duprat Group, major independent French provider of outdoor sport and leisure activities, sold their shares to the French private equity firm Orium and management in a leveraged MBO transaction. The founder retains a minority stake in the Group. The Group is the French leader for incentive solutions dedicated to corporates with more than 1000 events managed per year. Clairfield International in France advised Duprat.

Nijl Aircraft Docking, a Dutch company that provides aircraft maintenance access equipment and related maintenance services, was sold to Eurosafe Solutions, the Netherlands-based company engaged in design, supply and installation of fall protection so-lutions. Nijl Holding is a Dutch holding of several companies active in the steel industry. Clairfield International in the Netherlands advised Nijl Holding in the divestment of Nijl Aircraft Docking.

Clairfield International in Charlotte acted as financial advisor to Royal Pet Supplies, Inc., a leading pet product distributor and portfolio company of Quarry Capital Management, LLC, in its sale to Phillips Feed & Pet Supply, a portfolio company of AEA In-vestors, LP. The acquisition of Royal will strengthen Phillips’ presence in the northeastern United States and expand its aquarium product portfolio with the innovative Deep Blue brand.

Clairfield International in the UK advised Recodebt Limited, a debt collection agency trading as CCSG, in its disposal to Sigma Financial Group. CCSG was founded in 1973, and has grown to become one of the UK’s leading debt collection agencies, focused on debt collection and credit control for utilities, telecom companies and government departments. The Sigma Financial Group is a rapidly growing contingency collections and portfolio purchase business, backed by funds managed by Cyrus Capital Partners.

Mackay Sugar is Australia’s second largest sugar milling company, with an annual turnover exceeding AUD 300 million. Clairfield Australia worked with Mackay Sugar to explore a range of potential sources of debt. FIIG was able to secure AUD 50 million in funding from its investor base through the issue of unsecured, 5-year notes, at a fixed interest rate of 7.25%. This fixes the cost of funds for the term of the issue and broadens the sources of capital for the company.

End to End Marketing Solutions Pvt. Ltd. is a privately-held marketing services provider based in Bangalore, India. The company has several Fortune 500 companies in its bouquet that includes Microsoft, Intel and Hewlett Packard. Its services includes direct marketing, targeted and niche marketing, lead generation, e-mail marketing, telemarketing, demand genera-tion events and channel marketing. Clairfield India advised its sale to McCann Worldgroup.

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THIRD QUARTER 2011 NEWSPAPER

This month of May, the head of Clairfield’s China desk, Yufang Guo, has joined a delegation of Dutch business executives on a trade mission to China to establish cooperation with their Chi-nese counterparts. The delegation is sponsored by the Minister for Foreign Trade and Development Cooperation of the Neth-erlands, Lilianne Ploumen. She will be accompanied by execu-tives from more than 50 Dutch enterprises. The delegation rep-resents Dutch expertise in sectors such as aerospace, energy, waste management, services, agriculture, and food. The delega-tion is visiting four major Chinese cities: Beijing, Shanghai, Hong Kong, and Chengdu.

Highlights of Mr. Guo’s progam on the trip include “speed-dat-ing” with several Chinese private equity firms, M&A advisors, and M&A-related law firms, including Hony Capital, Pusi Capi-tal, Shanghai EBI Group, Vermilion Partners Limited, Shanghai Huaran Investment Consulting Group, Beijing Mingda Law Firm, and Conpak CPA. Several industrial companies will also be vis-ited, including Fosun Group, China DaTang Corporation, PangDa Automotive Group, and Bright Food Group. Mr. Guo has also met with several Chinese official institutions such as the Cham-ber of International Commerce Shanghai, Shanghai Chamber of Commerce for Import and Export, the China Council for the Promotion of International Trade (CCPIT), and the Financial Af-fairs Office of the People’s Government of Liaoning Province.

CLAIRFIELD CHINA HOSTS DUTCH VISITORS

Moreover, Ms. Ploumen hosts seminars and trade dinners dur-ing the visits to Shanghai, Beijing, and Chengdu. Clairfield China has invited many key buy-side clients who are interested in con-necting with European industries.

SECOND QUARTER 2013 CLAIRFIELD REVIEW

DISCLAIMER: No part of this report may be reproduced without the written permission of Clairfield International or one of its partner firms. The information herein has been obtained from sources that we believe to be reliable, but we do not guarantee its accuracy or completeness. While we endeavour to update on a reasonable basis the information presented in this report, there may be regulatory, compliance or other reasons that prevent us from doing so. Much of the information contained in this report is subject to variation due to changes in market conditions, legislation or regulatory matters and Clairfield International does not undertake to notify any recipient of the report of changes to the information contained herein. This report is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction. Additional supporting information is available upon request. Please contact: Research Desk, Clairfield International, Tel: +34 93 487 0330, email: press@clairfield.com.

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Lilianne Ploumen, the Minister for Foreign Trade and Development Cooperation of the Netherlands, and Yufang Guo, head of the Clairfield China desk