Symphony Technology Group (STG), a $1.2 billion technology holding company, has acquired Metreo, a vendor of pricing intelligence, optimization, and execution software for industrial manufacturers and distributors. Financial details were not disclosed.
According to Metreo's new CEO Jim Clayton, the small software company's financial backers withdrew their funding earlier this month, leading management to lay off the 15 employees and cease operations. Several suitors bid for Metreo's assets, he said, with STG (Palo Alto, CA) emerging as the winner.
Given Metreo's predicament, the software startup's asking price was likely quite attractive, according to AMR Research Inc. vice president John Hagerty. "[Metreo] couldn't continue," he said. "This was a fire sale."
Considered by AMR to be a "market leader" in the emerging price management/optimization space, Metreo had begun to generate traction, but ultimately fell victim to the funding problems that often plague startups, Hagerty noted. The company's website lists Eaton Corp., GE Industrial, and Hewlett-Packard Co. as key reference accounts in the manufacturing market.
STG swooped in on Metreo because company head Romesh Wadhwani believes that price management is a promising component of business performance management, a software segment in which the technology holding company already has a significant presence, Clayton said. STG's portfolio includes numerous enterprise software companies with large installed bases, including Intentia, a provider of enterprise applications to mid-market manufacturers, which is in the process of merging with Lawson Software Inc.
For STG, the Metreo acquisition falls under the heading of "innovation investments," Clayton said, in an interview with Managing Automation. "[STG] saw a lot of value in the pricing solutions area."
Pricing management is very attractive to manufacturers across nearly every industry segment, because, if done properly, it can improve profitability in ways that extend beyond the obvious (e.g., cost cutting), AMR's Hagerty said. There is serious monetary value in "figuring out the best price your customer will accept and enforcing some discipline around how salespeople quote prices," he said. "If you can put controls around the pricing process, you should be able to see an uptick in the range of a percentage point or two in terms of profit. That is the holy grail."
Putting structured processes around pricing should also aid compliance with regulations such as Sarbanes-Oxley, which demands rigor and extensive documentation, Hagerty added.
AMR has projected that the market for price management software will grow at a 45% annual rate for the next few years. Others, including consulting firm McKinsey & Co., concur with that assessment.
This bullish outlook recently caught the attention of enterprise software giant SAP AG, which entered into an agreement to sell and support applications from Vendavo Inc., a pricing management software vendor to the chemical industry.
Earlier in 2005, Oracle Corp. acquired ProfitLogic, a provider of profit optimization software to retailers.
Pricing optimization and execution may well become the next field on which the titans of the ERP and SCM markets battle. For instance, Manugistics Inc., an SCM vendor which shares a preponderance of customers with SAP, is developing a pricing optimization module for its supply chain execution software suite that is expected later this year.
Coming out of the financial crisis, Metreo's staff situation is still in flux, according to Clayton, though STG managed to locate and re-hire much of the core group. "We've had to do a little backpedaling to pull the team back in. I feel comfortable that we've been able to do that," he explained, adding that Metreo will continue to support its 18 existing customers while exploring other ways to sell its software.
Metreo co-founder and former CEO Daphne Carmeli will stay on to advise the new management team during the transition, according to Clayton.
Metreo's pricing software applications include Metreo Target (which incorporates mathematical algorithms to help industrial manufacturers set the right price for their products), Metreo Response (which helps ensure sales personnel in the field are following the pricing policies and parameters established by management), and Metreo Vision (a business intelligence-like analysis tool).
The pricing execution piece of the solution, Metreo Response, does not carry the baggage of traditional sales force automation (SFA) tools -- i.e., resistance from the sales people themselves -- because it helps them do their jobs, Clayton said.
"SFA and CRM deployments often ran into trouble because those tools did not help the sales guy do his job. This is different because you're giving the sales person the tool to help him in the negotiation with the customer," he pointed out. "There's no chance he's going to get to the end of it and find out he doesn't have approval to make the deal he offered the customer."
Metreo does not currently have the comfort or cachet that comes with backing from an industry heavyweight like SAP, but at least for the moment, the wolf is no longer at the door. The reborn Metreo is free to do deals with ERP or SCM application vendors to ride on top of, or be incorporated into, their solutions, Clayton said.
"We decided to buy Metreo as a beachhead, to build the leading pricing solutions company in the market," he concluded.