BPS player Xchanging has made its first acquisition in several years after recent restructuring and asset disposals (see here and work back), taking over US-based e-sourcing software as-a-Service (SaaS) provider MarketMaker4 (MM4).
Xchanging is paying up to $22m in cash for Chicago-based SBB Services Inc and its trading business MM4, which includes $11m upfront and the rest dependent on MM4 achieving certain performance milestones through 2014 and 2016.
MM4 provides a SaaS solution for e-sourcing, online auctions, market intelligence, as well as offering strategic sourcing and supply chain consulting services. Xchanging said the deal will enable it to engage directly in the e-sourcing segment of the procurement market, and should present opportunities to cross-sell its own procurement BPS activities on top.
In theory the deal should help boost the profitability of Xchanging’s existing procurement business too, since it is apparently a higher margin offering. Procurement and other BPO was Xchanging’s least profitable division group-wide last year, with a 5.3% adjusted margin, so any improvement will be very welcome.
Xchanging's purchase shows it is responding sensibly to the increasing threat SaaS poses to the traditional outsourced process operations model. This ‘bolt-on’ acquisition strategy also suggests management has learned important lessons from the disastrous big deal strategy of the past (see here and work back).
The intention will no doubt now be to offer MM4 via its existing SaaS model, and via a hybrid operations delivery approach, involving platform BPO and/or Business Process as a Service (BPaaS), thereby attempting to drive demand for Xchanging's existing process operations and capabilities. Xchanging is developing a similar strategy in the insurance sector around its Xuber business process platform (see Xchanging’s Xuber platform targets insurance SaaS/BPaaS). The big challenge however will be navigating existing customers through the transition without cannibalising existing revenue.