SaaS M&A, in this Economy? A Sign of Good Things to Come?

I have taken a couple days to stew over some pretty interesting M&A deals in the tech sector that developed at the end of last week. I see the Autonomy/Interwoven as a simple situation where a large player in an (somewhat) established sector is looking to become a de facto giant. The content management tools that this combined company would offer, coupled with some very interesting discovery technology could be huge in an upcoming era where regulatory issues and financial compliance will be top of mind following a prolonged era of financial mismanagement. I mean, the boom around Sarbanes-Oxley compliance could be dwarfed by the amount of regulatory fallout that this financial crisis could foster.

And while it is certainly for much less than $775 million, the deal between rival sales performance management (or SPM, if you feel we need yet another 3 letter acronym in this industry) providers Xactly and Centive interests me more.

On paper, the deal makes perfect sense. Xactly scoops up one of its major rivals, and only has a single entrenched pure play provider (Callidus) left to battle. And to boot, that provider has had some difficulty breaking in to the SaaS model, having been an on-site software provider for much of its life.

But what surprises me about this deal is two things. One, the fact that a company like Xactly would take such a gamble in this economy. Xactly is not yet profitable, and offers what I have called in the past a “nice to have” strategic software package. What I mean is, sales teams NEED a CRM package, but incentive tools and other compensation management offerings are not dire for a sales organization’s survival. In tight times – these are the first to go. And with a SaaS model, it is easier to shuffle off software that a firm has not invested heavily into, in terms of IT and other resources.

Second, why Centive? I read in a CRM magazine report on the deal that Xactly only lost deals to Centive. That makes sense. But I wonder if the notion of building a SaaS/On-Site hybrid was ever on the drawing board. I have spent a lot of time with Chris Cabrera, Xactly’s CEO, and he is a firm believer in SaaS. But what I have learned here at SugarCRM is that a lot of customers are still not sold on SaaS, for a lot of different reasons.

Now, there are a lot of benefits to blending two SaaS companies. From a business perspective, SPM is a “bolt-on” concept – so this is really a line of business sale. IT doesn’t need to be involved if a sales VP can pay for, and deploy SPM out of his budget and with just a web browser.

Also, supporting a combined technology offering is easier via a SaaS model, sure. And ultimately, integrating two product lines is easier in SaaS models. But on a long-term basis, customer choice will prove that rival Callidus (which is ramping up SaaS offerings though has yet to really make a splash in my opinion) will continue to be around, as there will always be those that need on-site software.

Finally, the real story here is that in the last few days we’ve seen almost a billion dollars in M&A transactions. In this economy, we have to find the little things that can start the momentum building towards more market fluidity. If this isn’t a good sign, I don’t know what is…

2 thoughts on “SaaS M&A, in this Economy? A Sign of Good Things to Come?

  1. Hi Martin-
    Thanks for the coverage of our recent acquisition. I couldn’t help but chime in on a couple points:
    1. As you correctly point out, I am a firm believer in SaaS. You might recall that I spent almost 7 yrs selling an on-premise app in the sales performance space and created Xactly specifically to get away from that approach and to embrace multi-tennant SaaS. I wouldn’t hold your breath for an “on-site” offering from “Xactly”.
    2. I would just offer that while CRM is certainly more mainstream than SPM, I do not agree its a “nice-to-have”. In a down economy customers and prospects are looking to our service now more than ever because it can change the behavior of their sales teams and get them to sell more. And for some of our customers, they buy it so that their reps will actually use their CRM! ;)
    thanks
    Chris

  2. Thanks Chris,

    When we last talked – I saw where Xactly was going, and the suite is very attractive – both from a tactical and strategic view – when it comes to sales orgs. Perhaps I was being too dismissive with the “nice to have” comment, agreed. The whole picture of the Xactly line does equip sales teams (and managers) with a lot of critical tools – all well integrated with CRM.

    Being part of a sales and marketing organization here at Sugar that really spans the gamut – from very small sales teams (like, one person) to deeply hierarchical models, I see all kinds of budgets and priorities. I think in the smaller businesses – and in industries with tighter margins – tough decisions are being made about where dollars are deployed.

    But gauging by the momentum in the space – SPM should continue to keep on trucking. And I imagine there is a big value proposition to aligning sales goals and activities with budgets etc. in this economy – there’s a great story there…

    -MS

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