Mercell is a public company (listed in Oslo) and is the leader in the public e-tendering business in the Nordic region. Mercell proves that after all these years, it’s still possible to discover a publicly-traded procurement software company! (The company seems to have just gone public in July.)
If you are not familiar with public e-tendering, it’s the process governments use to issue bids to potential government suppliers. In many countries, governmental solicitations exceeding a certain dollar threshold must be made public. Federal government opportunities in the US greater than $25,000, for instance, are posted on Contract Opportunities (f.k.a. FedBizOpps).
You might be thinking “Where is the money in public tenders for software vendors?” Well, some software providers sell government buyers sourcing tools for creating and managing these bids. Some companies also sell software to suppliers for aggregating, being notified, and responding to these bids. Some companies sell to both sides. Mercell sells to both sides. Companies in this business in North America include Mediagrif, Onvia (Deltek), Demandstar, Bonfire, and BidSync (Periscope).
As you will see in Mercell’s detailed investor presentation, Mercell sells a tool to governments for managing and publishing their tenders but derives its revenues primarily from selling a bid notification service to suppliers.
Seventy percent of Mercell’s revenue comes from the supply side. Thirty percent of revenue comes from the buy-side. For the years 2017-2019, the company grew about 14% organically and had adjusted FCF of about 10%. Mercell has also grown through acquisition. The company made six small acquisitions between May 2019 and June 2020. The company projects a revenue run rate of NOKm 290 or about $30 million in ARR as of May 2020.
Mercell makes plain its aspirations.
Beyond the typical price, product upsell, and churn optimization initiatives common to most marketplaces are two major thrusts.
- More geographic expansion through M&A.
- Expansion into procure-to-pay for public and private buyers.
The geographic expansion will be important. The Nordic countries have a combined population of well less than 1/10 the US, less than the population of California. These countries represent a great market, but a very small one for building a large software company! Basware, Opus Capita, Tradeshift, and IBX Group (now Tradeshift) are all vendors in the procurement space that originated in the Nordics. All expanded beyond their local markets with varying degrees of success. (Interestingly, one of Mercell’s most logical potential acquisitions, Vortal (based in Portugal), was recently acquired by Docu Nordic, a Swedish competitor).
Mercell’s expansion into the procure-to-pay market (or what the company calls “post-award”) seems to driven by their recent acquisitions of Tricom and Comcare. Tricom offers spend analytics and a contract to pay platform. Comcare offers a procure-to-pay solution. This “downstream” expansion will put Mercell up against the aforementioned companies, as well as Proactis, Medius, Jaggaer, Coupa, and a host of other competitors.
Mercell’s market cap is about 10x pro forma ARR. It will be interesting to see how the company, and the stock, fare as Mercell expands.