A Deal That Re-Defines the PSA Space
Today, NetSuite announced that it is acquiring OpenAir, a professional services automation (PSA) software company based in Boston, Massachusetts. NetSuite will pay approximately $26 million in cash for OpenAir.
Why We Like This Deal
We believe this deal will have a significant impact on the PSA software market space. Why? For many years now, the PSA marketplace has maintained a nominal sense of stability wherein PSA vendors quietly competed with one another. And, although large ERP vendors purchased some earlier PSA solutions, they have failed to take full advantage of same in the marketplace. In fact, we would argue that only Primavera has done a reasonable job of integrating companies (e.g., Evolve) into its product suite. In fact, recent merger and acquisition activity in the space has mostly been between PSA and PPM (project portfolio management) vendors.
In our discussions with SMB top executives, we have consistently heard complaints about the high cost of integrating clusters of application functionality with other components that companies have purchased/licensed. For example, users are distraught about the cost of integrating back-office solutions to front-office solutions to vertical specific solutions (e.g., PSA or manufacturing). Specifically, users have indicated that the cost of integrating these collections of functionality together is often a form factor greater than the license cost of a specific application suite.
By doing this deal, OpenAir now brings to the market an integrated financial back-office solution with its own service industry product line. Both will be offered in an on-demand (i.e., SaaS) basis. Service firms will, in time, benefit from the tight integration to come between these two product offerings. In a conversation this morning we had with Zach Nelson, CEO of NetSuite and Morris Panner, CEO of OpenAir, we learned that the integration will take place in three steps. Step one will be to integrate the two companies and their organizations. Step two will tie the existing product lines from both firms together. Step three will see the rebuilding of the OpenAir solution under the NetSuite toolset.
While NetSuite had its own service solution, OpenAir's is a more robust product and will undoubtedly assume the service industry leadership role within NetSuite. We believe this transaction will put considerable pressure on other PSA vendors such as QuickArrow and will likely result in a wave of other acquisitions in the PSA sector.
The deal brings other opportunities for the combined company. The acquisition of OpenAir brings a significant East Coast presence to NetSuite. OpenAir brings 300 service based customers into the NetSuite family. Virtually all of these customers utilize back-office applications that are prime replacement candidates for NetSuite. A typical OpenAir customer would be using solutions such as Microsoft Dynamics, Great Plains, Sage, AccPac or other financial accounting software. Every OpenAir customer is an upsell opportunity for NetSuite. Likewise, NetSuite has over 5000 customers and considerable experience in the services sector. However, what we really like about NetSuite is its product development architecture: NS-BOS. This platform, also known as the NetSuite business operating system, permits two key things:
- the rapid development of vertically specific applications in a well-designed multitenant SaaS architecture
- the seamless integration of these applications with NetSuite's core front and back office products
This deal should be accretive in short order if both sales forces are unleashed to sell the NetSuite front office solution, the NetSuite back office solution and the OpenAir PSA solution.
This entry cross-posted to the Services Safari blog.