As of December 2022¹, Thoma Bravo, LP, announced the acquisition of Coupa Software for $8.0 billion, paying shareholders $81 per share representing 77% premium to closing price, with the intention of taking the company private. The all-cash acquisition proposal was closed as of the end of February 2023.
Coupa, founded in 2006, is a spend-management platform that had previously purchased the market-leading network design software, Llamasoft, in 2020. Prior to the Thoma Bravo acquisition, Coupa reported a GAAP net loss of $84.7 million, which equated to a loss of $1.11 per share.
Thoma Bravo is a US-based private equity firm and is considered the fastest-growing buyout firm of global software with over 300 software deals completed since 2003. While these acquisitions generate profits for shareholders, an acquisition by Thoma Bravo within the supply chain space does not bode well for supply chain resiliency.
What the Deal Means for the Supply Chain
In general, when manufacturers purchase software, the goal is to improve supply chain performance over several years by creating a relationship with a technology provider. Ideally, they would continue providing software upgrades, training, service, and employee support to drive improved supply chain value. The value can only occur when the software is successfully utilized, and although buying the software is step one, every step moving forward requires a tight relationship with the software provider.
Thoma Bravo’s acquisition history typically demonstrates a different route than what customers require. Rather than continuing to work closely together with the software provider, their first general impact involves managerial turnover, layoffs, and company cutbacks. For those who use the software, the relationship is now redefined, and the supply chain is forced to do business with a much weaker company, resulting in a supply chain risk.
As more companies are unabatedly acquired by venture capitalists, it becomes a major risk to the supply chain resiliency.
Day-to-day Contacts Change
For companies that have been working with the software provider for some time, the point-of-contact transition can prove difficult. The relationship will be redefined, and any trust that was initially built would most likely be broken. If there are new contacts taking over, or current employees are stuck wearing multiple hats, communication will most likely begin to lag, ruining any process efficiency that may have previously existed.
Exiting Thought Leaders
As with the day-to-day contacts, prior leadership and the true thought-leaders within the company are likely to take any buyout offered and leave the company. Without these individuals, it’s possible that innovation will plateau and forward-momentum will stall. Unfortunately, this combined with broken trust and communication leads to the supply chain leader being forced to do business with a much weaker company to create additional supply chain risk.
The Downsides of the Acquisition
As anyone who has ever dealt with a transition in business will tell you, a company acquisition poses some downsides and difficulties for existing clients. Below are some of the most common and most frustrating issues to overcome.
Shift of Focus to Profitability Over Customer Service
Customer service is vital between software providers and clients in order for those clients to get the most out of their investment. Even if a software company is excellent at providing service, after an acquisition, that could disappear almost completely. Companies going from public to private generally place a heavier focus on profitability rather than customer service, leaving any clients that are in the middle of large scale process transformations clamoring for more attention.
There could be a number of cost-saving measures the new entity will implement, including lay-offs and major structural changes within departments, which will heavily impact the level of service customers receive. Despite these changes, prices for the software and services will most likely increase. Any current clients will be stuck with a lower-quality, higher-cost software service.
Why the Coupa Acquisition is Concerning for LlamaSoft Customers
One of the biggest concerns with the Coupa acquisition is a potential decimation of Llamasoft assets. As a major provider of network design software in the supply chain market, their major strategy from 2012-2015 was to purchase their competitors, making them the primary provider of network design services. Today, they are currently active in over 900 manufacturers and retailers.
Implementation of network design software is essential in order to mitigate supply and demand variability that was experienced throughout the pandemic, with inflation, and during times of short supply. Supply chain planning requires a strong network design plan to create buffers and nodes, otherwise it will be much less effective.
It’s common that recent pre-transaction acquisitions end up neglected if they do not align with the new owners strategy. If Coupa is unable to manage this recent addition effectively, those customers who are currently active with Llamasoft can only hope and clamour for attention.
Reduce the Risk of a Single P2P Solution
As a spend-management “platform” built through multiple ancillary product acquisitions, Coupa is not considered to be a complete solution. Many Coupa customers also require an Accounts Payable Invoice Automation (APIA) solution to fulfill their comprehensive procure-to-pay (P2P) process needs. The P2P process is particularly integral to Manufacturing and Distribution organizations, especially those who are growing and pursuing continuous process improvement.
APIA provides a low-risk, internal process-focused automation that does not impact your Supply Chain or vendor relationships. In fact, most APIA clients would say that the automation improves vendor relationships, maintains a cleaner vendor master, enforces purchasing controls and can increase discount opportunities.
Isn’t there enough risk in the Supply Chain these days without added risk from your software partner? The reality today is that, just like with the rest of your supply chain, you have to think both long-term and short-term about automation projects and software providers. No longer can we just buy from the big provider and lock into a long-term, stable relationship – things change fast. You need providers who are agile and deliver short time to value. Evolving with your needs rather than large-scale, radical change.
Sources:
1. Cecere, L. (2022, Dec. 14). Thoma Bravo Buys Coupa. Barbarians At The Gate Of Supply Chain Software. Forbes. https://www.forbes.com/sites/loracecere/2022/12/14/thoma-bravo-buys-coupa-barbarians-at-the-gate-of-supply-chain-software/?sh=6b356e377024
