EP 20: ProcureTech Insider: Why Procurement Tech Still Draws Investor Interest

0:00Music

0:15And today on the show I'm delighted to welcome Jack Andrews. Jack is an M &A director at Ciesco where he focuses on procurement solutions. He's also one of our executive judges for the 2027 ProcureTech 100. So today, I thought we'd take a look at ProcureTech from the investor point of view. And Jack, welcome to the show. Thank you, Philip. Delighted to be on. And so before we get into today's topic, can you speak a little bit about your background and the role that you do today at CSGO? Yeah, of course. Well, look, I tend to ramble when I talk through my background. So feel free to cut me off because this could be a 10 minutes answer.

0:52But yeah, look, my background, so my personal background, I've been working in investments and M &A for close to 12 years now. So I started my career in consulting. So I spent five years advising some of the largest private equity firms in the world that focus on infrastructure and energy. I then joined a family office where I focused on early stage investments in some quite interesting technology businesses. So typically at kind of series A, series B stage. And more recently, I'd say more recently, it was coming on six years ago, but I joined CSGO. So I've moved into a role now where I focus on mergers and acquisitions.

1:35So that's predominantly advising founders and shareholders on realizing capital either through a sale process or raising investment to scale the growth of the business. So that is what I do in a bit of a nutshell. What I do at Ciesco, and I'll talk a little bit about us as a firm. So we focus on two main verticals. So one is media and marketing, and the second is technology. And it's within this technology vertical where we've come to understand procurement and supply chain a lot more deeply. and you know our first transaction in procurement was you know kind of four or five years ago but really we've started to focus on it in the last you know 18 months and it's a incredibly interesting sector for us for a number of reasons which I'm sure we'll touch on.

2:32Yeah and I'd actually love to understand from your perspective what makes procurement and supply chain so attractive because I think as practitioners you know who have been in the industry a long time I've been in procurement 25 plus years. We always felt a little bit like the forgotten stepchild, so to speak. We had this inferiority complex. And I think it's interesting to see as you see more investment has come into the procurement space probably over the last, I don't want to say seven or eight years. And now we wonder, well, is that going to come to an end? Is it going to get found out? We all think, we're all very passionate about what procurement can do, but we still question whether that's seen outside of procurement.

3:11So I'd love to know kind of what makes this an attractive vertical. Yeah. So, yeah, I mean, almost for the reasons you described, that is why it's an attractive vertical. I mean, when we first started covering it, when you look at other ERP divisions like sales and marketing, HR, they've adopted technology and software a lot faster. you kind of look at procurement as more of a kind of manually focused industry and it's because that reason why we've seen a lot of investment because you know tech adoption across you know all industries has been very strong but in procurement it's behind so that's why you've seen a lot of capital go into it but there's a few other factors which I think play into that as well the geopolitical factors.

4:06So it's one of the very few industries which is actually shielded and somewhat benefits from trade wars through actual wars, through COVID. The executive board are looking at the supply chain and thinking, how do we become more robust? How do we become more flexible? And that's put procurement and supply chain in focus. and similarly as enterprises are looking at how they optimize costs across the organization, procurement is probably one of the first places you would look or it'd certainly be very high up on the list. So I think a combination of those factors has led to a lot of investment and a lot of deals and transactions happening in the space.

4:56Interesting. When you speak to all our founders, obviously in the procurement tech space, what's some of the biggest disconnects that you hear between what founders believe about the market and what you see? Yeah. Yeah. So that's it's become very apparent to me. So over the last 12 to 18 months, part of my job is speaking to founders and leaders within procurement. You know, some who have built businesses relatively recently and some who have had them for a number of years. And we obviously have conversations with them around, you know, when is the right time to sell? you know is it now is it in a few years time um and they look at what they read um in the software market so you know they would have seen five years ago that you know valuations were sky high and then you know the start of this year they would have seen sas apocalypse yeah and usually founders are you know they're either thinking that they can still get the multiples from 2021 or they're thinking it's an awful time to sell because the public market has crashed.

6:08So whereas on the ground, what I'm hearing from buyers both in the private equity world and the strategic world is there's still a lot of capital. There's still appetite for acquisitions. And in the private market, it tends to be a lot more considered, a lot more patient, less emotion driven. And there's still a lot of transactions that are happening. So there seems to be a bit of a disconnect between what founders are reading in the newspaper and what we're hearing on the ground from buyers. And you see it in procurement through the amount of acquisitions that have been happening. Now, it's part of that difference between what we hear in the markets and the doom and gloom around sales evaluations.

6:55is that because that's more, what's the right way, like the horizontal company, the ones that go across multiple different verticals, whereas the opportunities still exist and there's capital ready to deploy and there was a more kind of vertical that they're kind of procurement specifically or HR specifically or marketing specifically or whatever it may be, very specific use cases. Do you see that playing out? A hundred percent. Look, I mean, what happened on the public markets, it didn't happen for no reason. You know, there was, I think it was on the release of Cowork by Anthropic at the start of the year.

7:36You know, that was really the kind of straw that broke the camel's back. And that's why we saw valuations go down so considerably. But you're right in that people view software as just one sector, Whereas now what we're seeing is you've got your horizontal SaaS and your vertical SaaS. And where it's really impacted is in the horizontal SaaS market. It's solutions which, you know, sits on top of data rather than own the data. They sit across a number of different verticals. Whereas, yeah, you know, the vertical solutions, they are integrated with enterprise infrastructure. they're involved in day-to-day operations there's often proprietary data and so the appetite for those companies is still is still there because you still have this capital that needs to be deployed and you know you're actually finding that it's concentrating more for these vertical solutions and what that's what's that doing is it basic economics is it's driving up the value for those companies.

8:41So, yeah, I like to describe this as a seesaw. In 2021, the seesaw was relatively flat, whereas in 2026, it's a lot steeper. For really good companies, you're getting quite attractive multiples, but for more horizontally exposed businesses, it's gone the other way. You mentioned data, which is really interesting to me. I think about defensibility against AI. Or should I say AI is both something that a founder, a procurement technology company, any technology company can either look at as being something that's going to be a risk and a threat for somebody to go and build their own internal version of something.

9:22Or it's something which allows and enables them to do things that they couldn't do before and that nobody else can really do. And how do you look at kind of a business when you're thinking about AI? Are you looking at from a, how defensible is this to somebody building their own in-house versus, you know, is this other things underlying assets? Like you said, data being one of them that are things that you're not really buying the UX anymore. You're buying kind of what's underneath it. Yeah. Yeah, exactly. And that's really been a differentiator between some companies is they need a proper AI strategy.

9:57And an AI strategy isn't just adding, you know, co-pilot to your existing solution. You need to be able to prove that adding AI, you know, it improves the service offering that you're delivering to your customers. It makes your revenue more sticky. It can perhaps source more proprietary data to improve your own data mode. So that narrative around AI and the thinking that you'd need to employ, you have to consider all those things. It can't just be a plug on. But you're right. You know, when we're looking at companies, you know, that's the first question that investors ask us now. So it's important to have a well thought out strategy.

10:45Are buyers and investors seeing anything different in ProcureTech that they may have, you know, when you even think the last three or four years, you know, is it is a perspective on the market? changing, evolving? Is it the same as it was? And, you know, that thesis is just playing out. What do those kind of conversations look like? Yeah. I mean, the industry and the sector has evolved quite strongly over the last five years. It's certainly, you know, you look at these, you know, procure tech maps now, and there's hundreds of different companies now. I think in terms of capabilities, you now buyers can look at measurable outcomes.

11:28Technology can now capture savings and cycle times. And I think we're seeing pricing moving from seats to outcomes more and more. Businesses are more integrated now. They have better integrations with ERP rather than just CSV uploads. And you're now at a stage where AI executes tasks. It doesn't just summarize data. So I think those are probably some factors or some areas which investors would look at now, which they wouldn't have five years ago.

12:08As folks who have exposure to procurement and probably more exposure to procurement than anything else, it seems to us that this explosion in the number of solutions that are out there you know and this continues to be more and it's never been easier to to spin up a new product and we see all the time in our procurement as well that people that we talk to because we've been in this world of procurement has been probably a laggard in terms of investments into procurement which we talked about before and now there's investment that's coming which is leading to more companies it feels to us as if the market is becoming completely saturated.

12:43When you take a step back and you look at where investment came earlier and you talked about the sales stack and the marketing stack, you look at how many MarTech suppliers are out there, and it's tens of thousands, and we're talking about maybe 500 or 600 ProcureTech providers. Are we still early in kind of the total market, so to speak, versus what's happened in other verticals? Or is it just a smaller space where there's a smaller total addressable market? So even though the numbers are smaller, it still is kind of a crowded marketplace. Yeah, I see where you're coming at. No, look, I don't think the addressable market is that different to what you would see across other verticals.

13:27I think it has just taken a little bit more time for that investment to come. So to be honest, I wouldn't be surprised if we see many more companies start popping up, especially with, you know, the relative ease for software development now. You know, you can develop software so much faster. So you're going to have all these little, you know, solutions popping up that are going to be competitive. So, yes, I would probably say we're kind of, you know, early to mid cycle. there's been some consolidation but you know there'll be plenty more to come because you've got a lot of a lot of differentiated point solutions which are starting to get acquired by some of the larger players yeah it's really interesting because to us it feels like it's a really busy and crowded market and you look at you look at solutions and think why was there a need for one of those when we've already got many others but on the other hand you take the step back and look at the relative size of procurement technology versus sales martech or sales tech and it's still really minuscule compared to the others.

14:32Yeah, there's also, you know, it's quite easy to assume that all of the procured tech businesses are serving, you know, the largest enterprise brands. But there's whole, you know, there's mid-market, there's SMEs, and then, you know, they're all covering different geographies. And, you know, that goes some way to explain the number of solutions, and that's not even to mention sectors. Yeah. And one of the things that we see with this is this convergence of, as a lot of the procurement technology solutions continue to look for growth and they continue to develop, they're going from being a point solution to we do everything.

15:13You know, every provider is an orchestration provider now. And then actually now everybody is an agentic procurement operating system. So are you seeing kind of everyone converge from a messaging and positioning perspective? and if you do see that I'm wondering how do you kind of manage that from an investment perspective yeah it's a good question you're right you know AI is the buzzword now and you know every website has got a chat bot and they tell you they can do everything and you know that's this isn't a an isolated issue you know we as I said at the start of the call we cover marketing as a sector And you can imagine, you know, that scaled, you know, 100 times.

15:53So what people say on their website or in demos that they can do, you know, that doesn't always translate to what it is on the ground. So I think, you know, from our perspective of advising founders and from an investment perspective, you know, the marketing side of things, that's for the customers. What we look at is the customer data. You know, what are the numbers showing? you know is there good retention here are they winning against um you know some of the larger s2p players the incumbents um because the numbers always tell the story and then you know you're better off um you know when we're taking a business to to market to sale you're better off highlighting that you are a niche specialist rather than you know trying to dress yourself up as as everyone else you know you want to be leveraging what you're good at and what you're great at and that should be your selling point interesting so there's there's a danger in in saying that you can do everything you know we when we look at the procuratech 100 and um you know we invited rfis for the procuratech 100 as we went through the the process and there were so many providers that completed the rfi process that essentially checked every box of the taxonomy that they could do and and you kind of look at it and think really i would never consider you as being an expert in that space and you know you're an orchestrate you check you're an orchestration provider because you connect two different systems together and that doesn't necessarily mean orchestration so there's a lot of that kind of going on that's really difficult i think for practitioners to unpack when everybody starts to look the same as each other yeah and you know there might be an element of you know these guys are entrepreneurs and they'll they'll win the business and figure out how to deliver it later on which you know you've got to respect but yeah um yeah when you're um evaluating a procurement technology company what what kind of convinces you what are some of the signals that you see that that suggests this is this truly is differentiated from you know in whatever it is that you know that the actual thing that you're looking at yeah um again i would say it's a similar answer to the previous question it's it's in the data um and the single most useful piece of data is revenue by customer.

18:11And if you can look at that over a period of time, you can see A, what the retention is. Are customers repeat customers? Because that tells you that you're delivering value. And that's the most important thing. But it also shows, are you upselling to these customers? Are these customers asking you to add capabilities? and start moving into different verticals. Because what we found more recently, because there was a big fear when AI came that enterprises suddenly wouldn't need any solutions that developed everything themselves. What we found is that enterprises are leaning on their most trusted providers and asking them to add capabilities.

18:57And so if you are one of those incumbents delivering a good solution in whatever vertical you're in, you then get asked to expand your capabilities. And that's a very strong signal to investors and to buyers that A, your solution's providing value, and B, that there's scope to expand. And when you go behind the curtain, are there certain things that stand out in terms of, it could be organizational culture, it could just be such a great product market fit. So like are there things that you see behind the curtains, I say, that separates those that you look at and think, you know, those are a winner.

19:36Those are going to be successful. And those you might kick the tires on and you just have doubts about. Yeah. Yeah. I think from an investor point of view, there needs to be, you know, delivering a good solution is one thing, but there needs to be some kind of moat and, you know, some kind of differentiating factor. And it's typically the solutions where they have some form of proprietary data and that data is enriched over time and with more customers. So as the business grows, it gets stronger and stronger and it's more difficult for an incumbent to outseat them. Those are the companies which are really commanding the most interest for obvious reasons.

20:25Yeah. This may be off at a tangent, but with organizations starting to use an AI harness, whether that's their own agents, whether it's using Claude, whether it's whatever it is, do you see that the enterprises are essentially buying, are going to be buying the data rather than the experience, so to speak? Like this idea of like kind of headless software where you're going in, you're interacting with the pipes of a solution, but you're not actually, you're not going in and logging into something because your agent is doing all that. Is that, are you seeing that play out? Are we in a stage where people aren't necessarily thinking about that yet?

21:14I see it more in the sales and the marketing stack than in the procurement yet. But I just wonder if you've got kind of a view on if that's the direction of travel and how people actually, what they're buying when they go and buy procurement technology in the future. Yeah, I mean, what you're buying in the procurement or what's attractive in the procurement, it's you're buying the system that the AI runs on. You know, that's the important thing. And it's not the AI layer that you're providing because whether you're providing it or, you know, they've got their own in-house capability that can deploy an AI because, you know, most companies are running these AI solutions off Claude or off, you know, ChatGPT or one of these things.

21:55So they're not that differentiated. What differentiates you is the system that you've built that it runs on and, you know, how efficiently it can run on. um so if you're advising a founder of a successful procurement tech company today what signals would you tell them that you know this might be the right time to sell versus your early stage keep on going trust the process yeah it's a tough question that because we what i say to founders and what i say to business owners is the best um time to sell is is driven by your own personal um ambitions really and you know is there a perfect time to sell no um because you know if if if your business is growing and it's growing strongly and you're confident that um you know the business is going to create value over the next two or three years You might want to sell part of your business now, you know, cash in some money, bring on a partner that can help accelerate that growth and de-risk.

23:01Because when you sell a business, you're never walking away on day one. You know, there's always some kind of transition period. So what I would say is that firstly, look at your own personal situation. You know, does it feel like the right time to sell? could I do with some capital to pay off the mortgage and pay the school fees, but still keep enough money in to potentially cash out in the future? Those are my pieces of advice in terms of sell. Decide what you want from your own perspective, your own personal perspective. And if you've got a good business that's growing, there'll be a buyer for it, whether it's a strategic business, whether it's a private equity firm or whether it's a growth capital firm.

23:52Now, if someone was asking me, what can I do to make my business more sellable? Then that's, you know, that's a different conversation. And that's around, you know, ensuring that you've got good customer retention. The business isn't dependent on you. You know, you've got the right management in place so that you're more extractable and that you're integrated. with system integrators, you've built relationships with maybe some of the suites so that, you know, the sales and marketing function is run efficiently and that, you know, new business can keep running, coming in through the door. And this may, this might be a basic question.

24:34But I question what, why buy a procurement technology company? And the reason I say that from an investment perspective is it, there's an opportunity here that you know additional capital will you know accelerate growth and it's a we're looking at this from a here's an opportunity with one firm or is it there's an opportunity to buy variety of different points point solutions to bring them into something and roll them up into something that's larger and that gets obviously the economies of scale as well like is there a is is there a typical business model that a PE or an investor might be looking at at the moment of what they're looking to do with anybody that they acquire or is this very very specific around the strategies of each potential buyer um it's a mix of both really so one thing that private equity love is a consolidating market which procure tech is at the moment because um you know it's one thing to buy a good business but you have to sell it in three or four years time and you need to know that there's a buyer out there and in a consolidating market there's a lot of players so um from a private equities perspective, you know, you'd want to be backing a leader within a specific point solution or a specific vertical, and then perhaps look to add capabilities and then ultimately sell to a larger player.

25:52If you were a strategic like Cooper or Jagger, you'll be looking to add capabilities through the acquisition. So, you know, there's many different types of buyer and it's our role to work with the founder who's made the decision that they want to have a partner is to explore those different routes, both with strategic, both with private equity so that they can understand and choose the route that's most suitable to them. Yeah, interesting. And I'm about to wrap up. I have one last question. And I usually ask a bit of a crystal ball question, but that's your job as well is to have that crystal ball.

26:33so I just love your perspective on the market five years out and I don't want to I don't want to preempt it with anything more than that because you can go in a variety of different directions the market might look like but what's your kind of thesis on how procurement tech plays out over the next few years yeah I think I think we'll continue to see this consolidation so I think probably in five years you'll have you know two or three largest players in the market and you'll probably have like an orchestration or agent layer on top which is priced on on outcomes rather than than seats and i think you'll you'll have a long tail of specialist um you know providers i think um and then if we're looking at it from a perspective of you know how much of that is is automated um you know compared to today i think a lot of the tasks can be within procurement but it's you know and it's what we're seeing across other industries is that you know there needs to be human oversight you know AI needs to be focused on efficiencies and you know improving processes but it can't replace you know decision making and strategy it can feed into those and improve those but yeah I think the human element is still incredibly important.

27:57Interesting now This might be a tough question, but I think you talked about your exposure to and focus on marketing as well and the marketing tech stack. I wonder, is there anything that we in procurement can learn from what you see playing out on the marketing side? And I mean that from either the founder perspective, but also the practitioner perspective of adoption of technology. The answer may be no. It's kind of similar. But I'm just interested if you see any differences between kind of the two when you strip out, you know, marketing versus procurement and just being two different tech stacks.

28:33Yeah, I mean, marketing, marketing's quite advanced in terms of the technology that it uses. We're working with quite an interesting company in the US. So one area which AI has really disrupted and everyone will be aware of it because it's on social media is content production. So it's so easy now to produce any. And then you think, OK, if you've worked in production, does that mean your job is now? which isn't the case because the creative element, the input is still as important as ever because that's the differentiating factor between AI producing things with AI. You need that human element.

29:17And so some of the most successful companies we've seen in marketing have shaped themselves around AI and have restructured their businesses so that they can utilize AI. and when there's a new model that comes out, it feeds directly into their stack and they can leverage it even further. But it's people based on top of AI and you just have AI focused on optimizing tasks, delivering speed, delivering output, but it's being led by people. Yeah, it's kind of designing the operating model so that people are in the right places. Yeah, and that's what we've seen a lot of companies do over the last 12 months is almost restructured.

30:00If I was starting a business today, how would I set it up and then doing the necessary change? Because it's not going away. The genie's out of the bottle. Well, Jack, I want to thank you so much for your time. It's been a fascinating conversation. And what I'll do is I'll include a link to your LinkedIn profile in the show notes for the episode. So if anybody would like to reach out afterwards, they can go and find that. That's just going to be at artofprocurement.com and you'll find the podcast and all the podcasts here, the podcast with Jack. You can search for that and you'll find Jack's LinkedIn profile.

30:31Or just go to LinkedIn. Good news is it's a relatively easy name to remember. So it's Bill. So Jack, thank you so much again for joining us. It's been a pleasure talking to you today. Well, thank you for having me. It's been a pleasure to be on the show. And yeah, hopefully I gave something valuable to your listeners. Yeah, thank you so much. Thanks for listening to this episode of ProcureTech Insider. If you found this conversation valuable, you can subscribe to our ProcureTech specific newsletter, The Stack. Every Thursday, you'll get intelligence on ProcureTech companies, market developments and insights from practitioners delivered right to your inbox.

31:08To subscribe, go to artofprocurement.com slash subscribe. That's artofprocurement.com slash subscribe.