January 20, 2022

How the ambitious Esker is moving from eInvoicing to Source to Pay

By Patrick Chabannes

Esker, a Euronext-listed company specializing in the dematerialization of outgoing (Order to Cash) and incoming (Procure to Pay) invoices, is expanding its offering by taking over the English software company MarketDojo, known for its Source to Contract on-demand offering. Let’s decipher the strategy, the deal, the impact on the market and the challenges to be met.

In view of the increase in electronic exchanges, the ally of Finance and Accounting Departments has embarked on an extension of its value proposition by developing the functional bricks of a Procure to Pay solution based on its AP Automation specialty; a strategy validated by its entry as a Niche Player in the Magic Quadrant in October 2020. Its financial strength and international presence combined with the execution of its ambitious roadmap on the procurement requisition, catalog and contract side should allow it to move up in the rankings of international analysts by providing a complete Source to Pay offering to the market. 

What to think of this valuation at 13 times revenue for a multi-tenant Source-to-Contract SaaS vendor?

Announcements remain tentative as the deal is expected to be finalized during the quarter, but it seems certain that Esker will acquire 50.1% of Market Dojo and control of the English company, that the valuation will be a factor of 13 times revenue, that the transaction will be in cash with 20% in Esker stock and that there will be a full acquisition option in four years.

What do we think of this valuation? Some would say it’s expensive, but in 2019 didn’t Workday pay Scout RFP, multi-tenant SaaS, with a factor of 15? And if the Source to Contract solution acquisitions of Iasta by Determine (2014), SynerTrade by Econocom (2015), BravoSolution by Jaggaer (2017) saw factors of 1.5, 2 (est.) and 3.5 (est.) respectively, wasn’t it because they were all built on single-tenant technologies?

These gigantic differences in valuation measured against an observable metric are food for thought for software vendors and investors.

Market Dojo, one of the few Source to Contract on-demand solutions on the market

From the very beginning, the Francophile co-founder of Market Dojo, Alun Rafique, decided with his partners Nick Drewe and Nicholas Martin to offer an easy-to-use, on-demand bidding and auction management solution. A real Software as a Service, isn’t it? His customers test, use for an auction or a tender before taking an Enterprise contract with bilateral commitments. Its successes allowed it to develop additional modules such as Contract Management and Supplier Management. With £1.3 million in revenues, double-digit growth, 160 customers of all sizes and just 20 people, the Source to Contract expert will bring business skills and an effective software solution to Esker from across the UK to accelerate its strategy towards a Source to Pay Suite. 

Esker and Market Dojo, what are the consequences on the Source-to-Contract market?

During the four-year transition period, both companies will continue to operate under their own brand names while offering each other’s products in their respective territories. This is good news in that Esker is ensuring the continuity of the Market Dojo team’s dynamics and skills. Since there is no intention to invest in new skills in the medium term, we can predict that while Market Dojo’s purchase-oriented teams will not be able to take advantage of Esker’s offer, Esker customers with a purchasing department will have easy access to this easy-to-use, on-demand source-to-contract offer by the end of 2022. 2023 and 2024 will see an intensification of the competition on the S2C solutions market with, on the one hand, specialized high-value offers such as Keelvar or Archlet and, on the other hand, generalist and easy-to-use offers such as Esker (Market Dojo) or ScanMarket, which will put the historical editors in a difficult position.

Beyond technical integration, what if the big challenge was business skills?

Esker executives wisely asked for time to analyze the Supplier Management and Contract Management modules provided by Market Dojo versus the developments planned in its Roadmap to decide on its technological and functional strategy. Since the integration of Source to Contract with Procure to Pay does not pose any fundamental problems, Esker has the unique opportunity to direct its Upstream and Downstream Roadmap by defining a global product strategy. 

However, the Source to Pay software suites organize processes that involve Purchasing, Controlling and Accounting in the service of the business. The challenge for the publisher is to understand all of these businesses, which often use the same words to mean different concepts. The real challenge will be to carry out an internal work of business acculturation between specialists who speak with the Accounting & Finance and others with the Purchasing. 

Knowing what we don’t know, creating a vision for the business, recruiting talent in a market under pressure, developing partnerships, these are human issues, too human. 

Thank you to Alun Rafique, CEO and founder of Market Dojo and Emmanuel Olivier, COO and founder of Esker, for taking the time to share their vision of the market and some elements of their strategy.

Lectori salutem, Patrick Chabannes