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Instant Analysis: Selectica Acquires b-pack for $12.5 Million

Selectica (NASDAQ: SLTC) made yet another smart acquisition—its second in two years—with anagreement announced yesterday, March 30, to acquire b-pack for $12.5 million in cash and stock. The deal is expected to close by the end of June, 2015. Combined with its acquisition of Iasta in June 2014 (read Ardent’s analysis of that deal by clicking here), this new deal, assuming it closes, continues Selectica’s transformation from a contract lifecycle management specialist into a company with a full supply management solution suite.

While it has some strategic sourcing solutions in its portfolio, the France-based b-pack has historically focused on procure-to-pay systems, including eProcurement and ePayables (or “AP Automation). Adding b-pack’s capabilities into the mix now means that the new Selectica solution footprint will cover the entire breadth of the procurement workflow as well as invoice management.

How b-pack Fits in

Before it acquired Iasta, Selectica was a long-standing Contract Lifecycle Management (“CLM”) solution provider and one of the remaining CLM “pure plays” in the market. Selectica had a leading offering but, just like all the other CLM pure plays, it struggled to grow and be profitable. But, while the others (among them DiCarta and Upside) mostly sold out, Selectica chose to raise some capital and go on a buying spree.

The addition last year of Iasta was a smart one from both a financial standpoint and a solution standpoint. Iasta is best known for its sourcing solutions, including optimization and has long been a tough competitor in the eSourcing market, frequently punching above its weight. Over the years, Iasta successfully developed a broader suite of solutions including Spend Analysis, Supplier Information Management, Supplier Performance Management, and a Contracts Repository. The combination of the Iasta suite with Selectica’s offering will ultimately (once the integration is complete) result in a competitive strategic sourcing suite [Part of our briefing with executives at Selectica/Iasta focused providing a post-merger update.We'll discuss this in more detail in our long-overdue follow-up to our "Instant Analysis" of that deal.].

With the b-pack acquisition, Selectica will gain the ability to handle the requisition-to-order process (eProcurement) as well as invoice processing  (ePayables) which rounds out its supply management suite while also strengthening its ‘compliance’ solutions – Selectica has had strong, recent push and focus on compliance.

Selectica also gains b-pack’s roughly 100 new global customers, which are spread primarily throughout Western Europe. This nicely augments the company’s United Kingdom focus. b-pack’s solutions are well-regarded, but outside of its native France, the company is largely unknown. b-pack has a partnership with Iasta for some time. But that notwithstanding, considering the number of years that it has been operating in the United States, b-pack has done a very poor job of establishing itself in the world’s largest market. That failure now stands to be Selectica’s gain.

Deal Analysis

The acquisition is split between stock and cash, with about 90% of the $12.5 million purchase price funded by common stock at a fixed $6.11 per-share price. Only 10% of the purchase is funded with cash, but Selectica will also grant b-pack employees options to purchase 700,000 shares of Selectica common stock.

The companies announced that b-pack’s 50 employees, located in Aix-en-Provence and Paris, France; Atlanta, GA; Hamburg, Germany; and London, will stay with the company post-acquisition, including b-pack’s CEO and Founder, Julien Nadaud.

It was also reported that b-pack revenues for calendar year 2014 were between $4 million and $5 million, based on preliminary unaudited financials. The French company says it has grown revenues by low double digits each year since its founding in 2000, with its SaaS business growing much faster recently. Selectica has said that it expects to reach profitablity this year and that it expects the deal to close at the end of the first quarter of its 2016 fiscal year, which ends on June 30, 2015.

Ardent’s Analysis

  • The deal brings together companies with complementary products – the combination of strategic sourcing and P2P solutions.
  • Acquiring b-pack immediately expands Selectica’s geographic reach and brings together companies with different geographic strengths – Selectica in U.S.; b-pack in Western Europe and France in particular.
  • Assuming the deal closes, this deal turns Selectica into a provider of a full supply management solution suite and will allow it to compete more frequently and more directly with the larger suite providers in the market.
  • Of course, it will take some time for the solutions to integrate, but frequently, having taken intermediate steps to full integration and defining a clear timeline will satisfy buyers in the market to buy and wait for the integration
  • b-pack has had a relationship with Iasta so there is familiarity that extends beyond the negotiation and normal due diligence. This should be beneficial post close.
  • With a reported 100+ clients and revenues of between $4MM and $5MM,the average b-pack customer is paying between $40,000 and $50,000 per year.
  • Selectica has a huge opportunity to bolster the b-pack solution and begin to move it and its entire solution set up market and begin to pursue larger deals from larger companies.

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