Concur's 1 August acquisition of Paris-based expense competitor Etap-On-Line and its Ulysse product line garnered about "50 employees, 200 customers and a clear and deep understanding of the French market," Concur CEO Steve Singh said Wednesday during a June quarter earnings conference call.
Concur announced the purchase of privately held Etap-On-Line Monday and on Wednesday reported third-quarter revenues of $62.2 million, 13 percent more than a year earlier. Concur reported quarterly profits of $7.2 million. While the acquisition would provide "minimal near-term financial benefits," due to the cost of integration and other factors, Singh said, it "not only bolsters our presence in the European market, but expands our framework for future revenue and earnings growth."
"As we've talked about for several years, Europe is a very strategic growth area for Concur," Concur executive vice president of worldwide marketing Michael Hilton said Monday. "With Etap-On-Line, we saw the opportunity to align with our overall strategic vision and help accelerate it ... not only providing a market-leading pan-European solution, but also ensuring that we're delivering best-in-class solutions in each country and region inside of Europe. It is very much a market-leading solution in the T&E space in Europe, particularly in France. As we got to know the company, we saw a great cultural fit, great product and just a great group of people."
Etap-On-Line's two founders, Pierre Higelin and Pierre-Emmanuel Tetaz, were set to join Concur in "very senior leadership roles within the European operations team" that had yet to be finalized, Hilton said. The deal closed Saturday and does not require governmental approvals, Hilton said.
While there are "obviously a lot of overlapping capabilities" between Etap's and Concur's travel booking and expense management products, Hilton said, "pretrip approval" is one area in which Concur expects to "leverage some of their work" across its technology platform. "It is much more important in Europe than it is in North America. Expectations and requirements are more sophisticated in terms of how companies want to operate. We think they've done a really, really extraordinary job of meeting the markets that they service in that area."
Acquisition And Integration For Expansion
As with other acquisitions it has made--of Gelco, Cliqbook creator Outtaskand Captura--Concur plans to "take a really hard look" at Etap's capabilities. "Long term, we want to have a single platform for all of our clients, but we also want to take the things that add value" and ensure that they are incorporated into the platform, Hilton said. As with prior acquisitions, Concur "has never been a company that has forced clients to move before they are ready," he added. Singh said "Etap's historical revenues were predominately on-premise license and service revenues," but that the company had "recently begun to move to subscription revenues." Concur in recent years migrated its own customer base from a license to subscription model, and Singh said it intended to continue with that model for Etap customers.
The acquisition also "further strengthens our execution capacity in one of the leading international markets of our largest distribution partner, American Express," Singh said.
Earlier this year, Etap reported 700 customers (far higher than the 200 Singh cited this week), 900,000 users and 2008 turnover of €7.4 million. Among its customers, Etap said, were AXA, BNP Paribas, Orange, L'Oreal, Saint Gobain, Sanofi-Aventis, Total and Rhodia. Concur said it has more than 9,000 customers, and only a handful were jointly served by Etap. The variance in customer counts, a Concur spokesman explained, was due to how it and Etap defined a company’s business units or divisions.
"Over half of the 40 largest companies in France are Etap customers--now Concur customers," Hilton said.
In May, Etap and Sabre's GetThere announced plans to integrate their products. "We intend to continue our collaborative work to integrate GetThere with Etap-On-Line," GetThere EMEA director Jason Geall said today after the acquisition by Concur was announced. "Etap-On-Line historically has a multi-vendor approach to serving the diverse needs of the corporate travel marketplace; we anticipate that the planned integration of GetThere with Etap-On-Line will ultimately provide a compelling travel-expense option for corporate programs across Europe."
Egencia and Etap also had a relationship to "provide T&E management solutions to our clients. We plan and look forward to continuing our relationship in the future," said an Egencia spokeswoman.
"We haven't made any decisions yet on any of those partnerships," Hilton said when asked about the future of Etap's relationships with both booking tool providers and travel management companies, including American Express, Carlson Wagonlit Travel, Egencia and others. "They've done some interesting, innovative things in terms of integrating with some of the other travel booking tools and TMCs. We're evaluating what those partnerships are, and we're still determining what the right course of action is going forward. It's very safe to say that many of those will survive, thrive and continue to grow. It's probably too early to say if all of them will remain in place and if the strategy will remain exactly as it is today."
A Carlson Wagonlit Travel spokeswoman said some of its "major clients in France use the Ulysse Travel & Expenses Tool provided by Etap-On-Line," and had been told that the acquisition by Concur would "not have any immediate impact on this solution."
With the acquisition, Concur now has about 200 people in Europe with primary offices in London, Prague and Paris and is "bigger than all of the regional players combined," Hilton said. Germany-based SAP is one global competitor.
Concur Analysts: Global Expansion A Logical Step
Since its acquisition of Gelco in 2007, slightly more than 10 percent of Concur's revenues have originated outside the United States. "We believe our European business can grow to become 30 percent of revenues in a steady-state model," Singh said on the earnings call. "To that end, we've increased investments in the European market."
Of the percentage, Kaufman Bros. IT services and enterprise software analyst Karl Keirstead said, "Candidly, the Street doesn't pay too much attention to that largely because the marketplace here in the United States is--if you believe Concur--so under-penetrated that Concur doesn't need to cross either ocean to sustain the growth rate. So I think the Street will view any additional European expansion as a bit of a bonus on top of growth here."
Keirstead said the Etap acquisition "sounds like a relatively small deal, and you can look at an international expansion strategy one of two ways: Either they're running out of growth domestically and need to expand their footprint, or they just see a great growth profile and they'd be wise to chase it. I'm assuming at this point that it's the latter. It's a wide open, under-penetrated opportunity in Europe, and Concur is being smart in getting a foothold earlier than its competition. So I think it's generally a good move."
Jefferies & Co. technology analyst Ross MacMillan said: "The timing is a little interesting. I don't know why it happened now. It's a very European-centric business. The last public record has them with about 650 clients so it's a fraction the size of Concur, although they opened their first U.S. office last year so arguably it could have been incrementally competitive with Concur in the domestic market. There remains some uncertainty about what sort of progression of growth Concur may see coming out of this cycle and what [stock] valuation is appropriate for Concur because it is one of the more expensive stocks in the software universe."
Post-Gelco, MacMillan said, "the view was there wasn't much left for them to buy, but you could argue that buying some geographic footprint makes sense."
Based on Etap's 2008 revenue figure, MacMillan estimated it at best as a "€10 million to €12 million business."
Wedbush Morgan Securities Inc. enterprise software research analyst Michael Nemeroff estimated that Concur "paid US$25 million to US$40 million" for Etap, although he acknowledged that the range was based only on Concur's prior acquisitions. Concur did not disclose terms of the deal.
"Concur was heavily U.S.-based and building out a larger global footprint is clearly what they wanted to do," Nemeroff stated in a research note. "It probably comes at a good time because the company's organic growth had been slowing significantly over the last couple quarters due to the challenging economic environment. These guys typically do an acquisition every year or two, and they were kind of due for one."
Other expense providers said they weren't too concerned about the acquisition given Etap-On-Line's size. KDS' Northern Europe sales director Matthew Frost said the acquisition actually "may be a good thing" to boost marketing of the potential benefits of automated expense systems. "Microsoft Excel is still the biggest competitor," he said. The acquisition "points up the differences" in approach of KDS and Concur, Frost said. "KDS is growing organically," while Concur is growing through acquisitions.
Given that Concur "claimed to be doing well internationally," DataBasics sales director Chris Harley asked: "Why do this acquisition of a few hundred customers?
"Concur is getting good at sun-setting products, and Etap will suffer the same fate as Gelco, Captura, and Vinnet," Harley continued. "Still, it will be expensive and distracting to move this user base to the Concur platform."
~ Includes reporting by Jay Campbell