Thoma Bravo Buys Coupa. Barbarians At The Gate Of Supply Chain Software.

This week, Thoma Bravo, LP, announced the acquisition of Coupa Software for $8.0 billion. Shareholders will be paid $81 a share, representing a 77% premium to closing price. Thoma Bravo’s intention is to take Coupa private. Coupa, a spend-management platform, founded in 2006, purchased Llamasoft, the market-leading network design software in 2020.

The all-cash transaction, with an enterprise value of $8.0 billion, is likely to be completed in the first half of 2023, subject to mandatory closing conditions and regulatory approvals. On December 13, Coupa reported a GAAP net loss of $84.7M or a loss of $1.11/share.

Thoma Bravo a US-based private equity firm, prides itself on being the fastest growing buyout firm of global software. With more than 300 software deals completed since 2003 and returning more than 30% net annually to shareholders, this might sound like a valuable business model, but a Thoma Bravo acquisition in the supply chain space is not good for the supply chain resiliency. (The ability of a manufacturer or a retailer to absorb demand and supply chain variability and deliver consistency in business results.) The company is a Barbarian at the gate when supply chains need to be stronger not weaker.

A Closer Look at Supply Chain Software

A manufacturer buying software strives to improve supply chain performance over many years through a relationship with a technology provider. The promise is continued software upgrades, training, service, and support of employees to drive improved value in supply chains. Value happens when teams successful use software. Buying software is the first step, but successful usage requires a tight relationship with the software provider.

Using history as a guide, when Thoma Bravo buys a company, the first impact is managerial turnover, layoffs and cut-backs. For the user of software, this translates to a redefinition of the relationship. Due to turnover, the day-to-day contacts change, and most of the software company thought leaders take the pay-off from the buyout and leave. As a result, the supply chain leader is forced to do business with a much weaker company creating supply chain risk. The continued, and unabated acquisition of software companies by venture capitalists is a major risk to supply chain resiliency.

Barbarians at the Supply Chain Door. The Risk for Supply Chain Performance

Over the last decade, Thoma Bravo became more active in the acquisition of supply chain software acquiring Elemica in 2016, GHX in 2014, and recently Anaplan for $10.4B. Thoma Bravo, at no time with prior acquisitions, successfully integrated companies or drove platform innovation. The historic play is a consistent cost play to milk assets for their investors leaving prior software acquisitions in a weaker position to compete or drive value for customers.

The concern with the Coupa acquisition by Thoma Bravo is the potential decimation of the Llamasoft assets. Coupa acquired Llamasoft in November 2020 for 1.5$B. The past two years of Coupa ownership has not been good for Llamasoft customers.

Llamasoft is the major provider of network design software in the supply chain market with few competitors. (The strategy of Llamasoft in the period of 2012-2015 was to purchase competitors and become the primary provider of network design software.) The Llamasoft solution deployments are active in more than 900 manufacturers and retailers.

Network design software implementations are essential to mitigate the impact of the demand and supply variability experienced in the last 36 months of pandemic, inflation, and times of short supply. Without a strong network design plan to design buffers and nodes, supply chain planning is less effective.

The forward looking statement from Coupa’s earnings states that “Coupa may not be able to manage its recent rapid growth effectively; risks related to past and future business acquisitions, including their integration with Coupa’s existing business model, operations and culture; failure to integrate Coupa’s platform with a variety of third-party technologies, making its platform less marketable; any failure to protect intellectual property rights; changes in privacy laws, regulations and standards may cause Coupa’s business to suffer.” This will only get worse with the Thoma Bravo acquisition leaving the Llamasoft assets on the sidelines.

Conclusion

As a result, Llamasoft customers of Coupa should aggressively hire network design talent/modelers and prepare to be more self-sufficient. As the Coupa team untangles the future, this is an opportunity for Gains Solutions and OMP to be more aggressive in bringing network design solutions to market.