Corporate performance management in the cloud gives way to sunny skies for M&A

Corporate performance management (CPM), which involves the delivery of purpose-built applications to create a workflow for financial planning, consolidation, modeling and reporting – in order to make these processes faster, more flexible and more manageable – is at an interesting juncture. While we will likely see the first cloud CPM vendor go public in the next couple of years, recent acquisitions suggest further market consolidation, too.

The 451 Take

Cloud-based CPM is now pretty common place. It is offered by most performance management vendors, whereas a few years ago it was delivered by specialists only. The growing acceptance of cloud services for performance management is validating this deployment model and making cloud CPM into a bedrock of broader enterprise applications and SaaS offerings, driving market consolidation, as recent deals below exemplify. We expect this trend to continue in the coming years, and we think the vendors below are likely to shape the M&A landscape going forward. That said, any business application vendor might consider a performance management acquisition, particularly those with an ERP app, because of their complementary nature. Furthermore, on the target side, cloud performance management pure plays Host Analytics and Anaplan remain vendors to watch, since they appear to have both exit options open to them.

Context

Cloud CPM has become a major factor in driving M&A activity in the performance management sector. For instance, consider the May acquisition by Marlin Equity Partners-owned Longview Solutions of Tidemark Systems.

The acquirer paid an undisclosed sum to buy Tidemark's cloud performance management service, singling out its innovative user interface design and reporting capabilities as key attractions. Tidemark (formerly Proferi) was known for its mobile and cloud-first design and ability to run on Hadoop. Tidemark's offering is therefore being used to give Longview's existing performance management portfolio a more modern look and feel. Moreover, the deal wasn't a huge surprise. Marlin Equity Partners has been instrumental in driving acquisitions in the performance management sector since it purchased Longview from Exact Holding in 2014. Marlin subsequently reached for German analytics and planning stalwart arcplan, to further shore up Longview's performance management portfolio by adding analytics in-line with a stated strategy at the time to bolster Longview via strategic acquisitions and organic growth. Picking up Tidemark, which already had Marlin as one of its many investors, therefore made sense.

Wolters Kluwer acquiring Tagetik for $340m in cash in March is another notable recent transaction. While the acquisition wasn't motivated solely by cloud CPM – Tagetik also supports on-premises deployments and, moreover, has a fairly large customer base, particularly in Europe – the deal exemplifies the growing movement toward integrating CPM as part of a broader offering. Wolters Kluwer snagged the company (now called CCH Tagetik) in part to add performance management to its existing offerings for corporate tax, compliance and internal audits.

Advent International-owned UNIT4's pickup of prevero in July 2016 is another example of an acquisition enacted for complementary technology. UNIT4, which continues to run prevero stand-alone, is also using the target's analytics and planning capabilities to help craft prebuilt content for industries in which the company operates, such as education and professional services.

Future potential targets

Vena Solutions is a startup that we believe could prove to be a desirable target for any company looking to buy its way into the performance management sector or augment an existing offering. Unlike many performance management players, Vena is looking to embrace Microsoft's Excel spreadsheet – still one of the most commonly used tools for performance management – rather than replace it. Vena came out of the gate with a strategy to bring the familiarity of Excel to its cloud-based budgeting, planning and revenue-forecasting service. However, it is Vena's ongoing game plan to expand its cloud service to become an enterprise platform for multiple use cases inside and outside of finance, which we think makes it highly prized and worthy of acquisition.

A buyer looking to snag a more mature BI and planning vendor with an international footprint might consider Jedox. The German company has historically gained most of its business from the DACH countries, but earmarked international expansion as a linchpin to future growth a couple of years ago. Jedox peddles budgeting, planning, forecasting and ETL-based integration. Additionally, Jedox Cloud is designed to provide the same capabilities as the company's on-premises product, since they were written on the same code base, which promises to make migration from one to the other simpler, and also opens the door to a hybrid on-premises and cloud rollout. Jedox also has some novel GPU-based acceleration technology to add fresh horsepower to performance management tasks, which is another technology asset that could be of interest to a prospective buyer.

We also think Adaptive Insights would be a fitting target – even though the company has mooted an IPO as an exit strategy in the past. Adaptive is an early cloud CPM champion – alongside Host Analytics – and is now a relative veteran of the sector. Adaptive's offering, although covering all the performance management bases, is particularly well-suited to collaborative, continuous planning tasks. It is also highly user-friendly. Adaptive would bring any company looking to acquire it a large customer base, particularly in the midmarket, where Adaptive cut its teeth.

It is also worth noting that Adaptive isn't alone in positing an IPO as a future exit strategy. Host Analytics has told us it is on an IPO path. Anaplan and BOARD International have also indicated that going public in the coming years is a realizable and desirable goal.

Future potential acquirers

IBM's performance management portfolio could be strengthened by adding some cloud CPM smarts to it, in our opinion. While Big Blue has a variety of on-premises offerings (also available in the cloud), such as Cognos TM1 for BI and planning, Cognos Controller for financial consolidation, and IBM Cognos Disclosure Management for managing the financial reporting process, it isn't as strong when it comes to delivering an integrated performance management service built natively in the cloud. Acquiring an offering of this description could immediately fill this gap while enabling the company to more effectively go toe-to-toe with longtime performance management rivals SAP and Oracle.

SAP and Oracle already have SaaS performance management wares. SAP Analytics Cloud and Business Planning and Consolidation (BPC) are some notable offerings from SAP; EPM Cloud and Hyperion are noteworthy offerings from Oracle. Oracle EPM Cloud is composed of a number of cloud services for tasks such as planning and budgeting, enterprise performance reporting, account reconciliation, and profitability and cost management.

Infor Global Solutions could also be in the frame to make a strategic acquisition. The industry-specific business application vendor is, after all, highly acquisitive. Moreover, Infor continues to cloud-enable its application portfolio – a strategy that could be kicked up a notch by making use of its well-oiled M&A engine to bag a performance management cloud service. Infor already has a performance management offering – Dynamic Enterprise Performance Management (d/EPM) – which the firm launched in 2013. However, there's a case to be made that acquiring a native cloud performance management service would increase Infor's competitive credentials against fellow business application rivals SAP, IBM and Microsoft. Furthermore, Infor has recently shown an appetite for acquisition in the related realm of cloud business intelligence, so cloud CPM would be a next logical step from an M&A standpoint. Infor nabbed cloud BI startup Birst in April to infuse analytics into the firm's industry-specific applications.

Lastly, OpenText is another potential acquirer, in our opinion. The company isn't an obvious choice, admittedly, but we think there are good reasons for adding performance management to the company's product purview. First, M&A is OpenText's leading growth driver. Second, the company has built a business in content services, and the financial data and other sources of information housed and surfaced by performance management apps give it another type of content. Third, performance management apps would slot nicely into OpenText's high-level enterprise information management focus, which is all about providing enterprise software for digital transformation.

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