Seattle - Last month's acquisition of Captura by Concur began in June when neighbors Dan Vetras and Steve Singh, the respective CEOs of those expense companies, awaited coffee at a local underdog to Starbucks. Announced July 31, the roughly $13 million deal now has the expense management sector waking up to the possibility of its own Starbucks.
Thanks, in part, to the acquisition, analysts and investors now are pointing to further consolidation—and even profitability—in an industry segment that for years has been anticipating both (see story, page 14).
Concur Technologies bought Kirkland, Wash.-based Captura Software for $2 million in cash, plus about 5.2 million Concur shares. Captura's owners now own 16.6 percent of the combined company. Based on Concur's share price as of July 30, the transaction is valued at $12.5 million to $14.9 million.
Already supplying expense management to more of the top travel-buying U.S. companies than any other vendor, Concur gains 70 new clients, including Booz Allen Hamilton, Ericsson, General Motors and Hewlett-Packard. Concur said Captura's client base represents nearly 3.5 million users combined. Altogether, Concur has more than 1,000 customers.
"I was surprised by how solid Captura's customer base is," said Philip Dunphy, senior manager of global travel with New York-based Pfizer Inc., a Concur client. "When you take the two customer bases, they have a tremendous stable. I'll be curious to hear about how they plan on transitioning in the future." He said that, because expense management software links with systems in accounts payable and elsewhere, vendors needs to be careful about merging platforms.
According to Singh, who is chairman, president and CEO of Concur, customer retention is Concur's first priority.
"The number-one thing is supporting not only the Concur customer base but, more importantly, the Captura base," Singh said. "We'll support the Captura product for the indefinite future, but we will merge the best of both into one next-generation product line over about a two-year period."
Singh said the two companies were "100 percent" aligned in terms of corporate culture and strategy, and there were the usual arguments about terms, but "what put me over the top was I talked with each Captura customer and I was impressed with Captura's commitment to customer service and its customers' commitment to Captura."
Some of Captura's top customers also are owners, including Ford Motor Co. and Merrill Lynch.
"We're pleased and are hoping to develop a more robust relationship and product," said Jeanne Young, vendor manager with Aetna in Hartford, Conn., a Captura client. "My biggest concern is the user interface. We just rolled out the Web-based version of Captura on July 3, so I don't want to put users through a tremendous amount of change again. They assured us we would not have to experience any changes immediately, and I was very impressed with how they personally called all the customers beforehand. It was both very professional and very personal."
Young is looking forward to more human attention to her account, which some Captura customers have said was lacking. The company had acknowledged it needed more resources to support existing clients when it aborted a planned public offering
(BTN, Feb. 26, 2001)."We expect the same quality of service that we had prior to the change of ownership, but with potential synergies that could result from blending the expertise of two experienced vendors," said Lisa Miedzinski, senior associate at Captura client Booz Allen Hamilton in McLean, Va., in a prepared statement. She observed no service issues since the deal was announced.
"In general, the biggest risk for customers with something like this is quality and service," said CIBC World Markets analyst Robert Maina, one of few non-shareholders who follow the business. "I've talked to the managements, and it seems they have an action plan in place that is sufficient to support these issues. For example, they did a lot of pre-marketing in talking to customers."
While Maina and others hailed the deal as one that will curtail deep discounting by expense vendors, he said, "Taking out Captura will not eliminate the pricing flexibility that customers have enjoyed." Maina said the enterprise resource planning vendors that offer an expense system will keep honest the main expense management system players.
"The ERPs more or less still give away the application," Maina said, "or, at least, they give you a heavy discount if you're already a customer."
"It might be premature to say this," Aetna's Young said, "but I'm not concerned about the pricing. Concur said they would be mindful of the negotiated deal we have in place, and we're strong negotiators."
While he sees that Concur is "doing better against ERPs than we were a year ago, as they are now more focused on their core business," Singh said, "We do see a lot of companies that are not necessarily building long-term business models putting a lot of pressure on pricing. We want to drive out irrational pricing behavior."
IBM, Oracle and SAP are among the larger expense providers that have significant usage by the top travel-buying companies; PeopleSoft also offers an expense solution. Other expense management players include American Express (using IBM technology), Extensity, Gelco, Necho and Outtask.
Extensity is the largest direct rival for Concur, which now is the clear leader in the large market. "Pick any segment and the leader owns a large chunk of the market," Singh said. "Why should this be any different?"
Concur planned to have consolidated as of last week Captura's employees and headquarters functions into its own headquarters. Singh said 350 of the "best and brightest" employees from both companies will be retained. The original Concur employed 320 people, Captura had about 140.
"Because we were the larger and the acquiring company, by definition you'll see more Concur employees stay," Singh said. "The vast majority of cuts came from Captura, but it's a good mix."
Captura's Vetras, who lives on Singh's street, will stay with the company during a 90-day transition period.