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Concur Technologies expects to gain wider scale, two new service extensions and an estimated $9 million in incremental quarterly revenues from its proposed acquisition of Gelco Expense Management's parent, H-G Holdings Inc. Concur last week announced plans to purchase the privately held expense reporting competitor for $160 million in cash. Provided the acquisition clears a Hart-Scott-Rodino antitrust review, Concur expects to close the deal with H-G majority shareholder Jupiter Partners by year-end.
Concur told analysts that the acquisition would add 1,200 new customers to its existing client base that had just surpassed 5,000. Thus, Concur would expand opportunities to cross-sell its new booking through expense platform, Travel & Expense 2.0, which includes electronic receipts from some vendors.
Gelco customers switching to Concur's system would gain access to the new, integrated tech platform. Gelco officials have repeatedly said--as recently as last month--that its customers were not clamoring for end-to-end integration. Although it questioned the value of--and corporate demand for--such solutions, Gelco announced integration plans with TRX and Travelocity Business, and said it would be among the five initial expense vendors in the Rearden Commerce Open Expense Network.
Concur also would leverage Gelco's auditing and payment processing services. "Gelco's auditing business is larger than ours, and they've been doing it longer," said Concur chairman and CEO Steve Singh. Gelco's Web site claims the company "performs over 20,000 audits per month" and "cumulatively performed over 600,000 audits on tens of millions of images."
"The innovation that we're driving in our market and the scale that we can build with the acquisition of Gelco are the building blocks of our business over the next decade," Singh said of his company's third acquisition, following the purchases of Outtask and Captura. "We're operating in a big market, with tremendous opportunity and strong competition. As we look five to 10 years down the road, it's clear that we need to drive scale, innovate at a faster rate and continuously raise the bar for customer service. The acquisition of Gelco will help us build scale and add unique services that help us provide compelling value for customers." Singh said Concur faces "some very strong competitors in this market, companies like American Express, SAP, Oracle, IBM, EDS, Accenture, Carlson Wagonlit Travel and Sabre."
According to analyst Sid Parakh of McAdam Wright Ragen, "With the acquisition of Gelco, we believe that Concur has strengthened its product offering, human capital and customer base, enabling the company to further consolidate its number one position in the industry and achieve scale compared to larger competitors ... in addition to giving it an upper-hand over other smaller and fragmented expense management vendors." In a research note, Parakh described Gelco as Concur's "closest competitor in the expense management business" and estimated Gelco's revenues at $30 million to $50 million, including a trade management segment of H-G Holdings that Concur isn't acquiring.
Founded more than 100 years ago, Gelco Expense and sibling company Gelco Trade since 1987 have been owned by H-G Holdings--part of the Jupiter Partners LLC portfolio since 1994. Gelco has about 270 employees located at headquarters in Eden Prairie, Minn., and in offices in Reston, Va.; Ontario, Canada; and Watford, United Kingdom. The company said it processes more than 9 million expense reports and over $7 billion in reimbursements each year for more than 625,0000 end users in over 50 countries using 120 currencies. Among its 1,200 customers are American Standard, B/E Aerospace, EMC2, Moen, Molson-Coors, Rolls-Royce, Time Inc., Wrigley and the U.S. State Department.
Gelco and Concur face competition from multiple vendors in four broad classes: expense modules of large enterprise resource planning or sourcing technology providers such as Ariba, IBM and SAP; independent expense firms such as CyberShift (Necho), Databasics, ExpenseWire, Expensewatch.com, Geac Extensity, Inlogik, KDS and Spendvision (affiliated with HRG); outsourcing providers including IBM, Infor and Interplx Technologies; and spreadsheets.
A survey of 377 companies conducted earlier this year by the Aberdeen Group found that only 27 percent have fully automated expense reporting, 26 percent have partially automated processes and one-third use manual processes. Excluding Ariba, SAP and Infor, customer counts for all other expense vendors combined number fewer than 10,000.
With Gelco, Concur also expected to gain a "modest amount" of federal government business. Gelco in 1995 accelerated its own growth in the government expense-reporting sector with the acquisition of one of the market leaders at the time, Federal Software. By the late 1990s, Gelco served more than 85 government agencies. The Corporate Solutions Group consultant Robert Langsfeld said that while Gelco is the "incumbent for a half-dozen to one dozen" agencies, "the incumbency is under pressure by efforts to streamline to fewer solutions." A U.S. General Services Administration spokesperson said GSA doesn't know how many federal agencies use any of the expense reporting solutions on its schedule. Concur provides expense services for the government of Canada, but is not on GSA's approved list.
While Concur hadn't targeted federal government business as a growth strategy, Singh said the company would continue to support all of Gelco's government and corporate accounts--as it had with the acquisitions of Outtask and its Vin.net expense customers last year and Captura in 2002. While most of Captura's customers migrated to Concur's expense solutions, Singh said the company continues to support some long-term clients. Singh also said the company would continue to support those Gelco customers using touch-tone phone and paper-based expense reporting solutions.
In addition to its integrated booking and expense platform with electronic receipts, Concur recently announced "Concur Connect," a set of Web services delivering content from over 100,000 suppliers through global distribution systems, and direct connections with airlines, hotels, rail carriers, car rental companies, limo firms, parking vendors and restaurant reservation providers. "This platform gives clients access to services and content that are otherwise unavailable through traditional managed travel programs," said Singh. "But unlike other content aggregators, we don't stop at reservations. Concur Connect gathers electronic invoices and, through Smart Expense, delivers live electronic data that can be used to generate expense reports." The integrated booking-to-expense platform was previewed at the National Business Travel Association convention in Boston last month, and will be delivered to customers starting in October, officials said.
Singh told analysts that "travel suppliers are embracing Smart Expense; for example Hilton, Marriott, Starwood, Hertz, Avis Budget and Enterprise have all begun the integration process by sending enhanced property and service descriptions for Concur to share with the millions of business travelers who book travel and process expenses through Concur's services." Concur Connect also includes direct access to content, affinity programs and receipts from Via Rail in Canada, SNCF in France, Rail1 in the Benelux countries, Die Bahn in Germany and Evolvi in the United Kingdom.
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