Guidewire makes blockbuster acquisition of ISCS

Guidewire makes blockbuster acquisition of ISCS
Long sought after by Private Equity firms, other insurers, and the occasional investment banker looking for a transaction, privately held ISCS has chosen to join Guidewire (NYSE:GWRE).   ISCS adds its SurePower Innovation end-to-end suite to Guidewire’s existing InsuranceSuite end-to-end suite. This is a decided change of acquisition strategy for Guidewire. Up to now, all its acquisitions have fit into—or added a single new element—to InsuranceSuite.   Why?   Well, if you are a publicly held company growth is good. ISCS immediately brings more revenue and more importantly brings good market momentum with a solid sales pipeline.   ISCS’ focus on small and midsize insurers brings a few other intriguing possibilities. One is that Guidewire and its SI alliance partners will now aim at the large and very large insurer market, leaving the small and midsize market to ISCS. A second is that ISCS will become a vehicle for small insurer growth outside of the US. The third is that ISCS’ more extensive cloud experience, especially with AWS, will step up Guidewire’s movement to the cloud.   For now Guidewire shareholders have a heckuva gift under their Christmas trees.  

Guidewire Acquisition of FirstBest – A Wakeup Call for Core Suite Vendors?

Guidewire Acquisition of FirstBest – A Wakeup Call for Core Suite Vendors?

The Guidewire acquisition of First Best should come as a wakeup call to other suite vendors in the marketplace.   Not to be a doomsayer, but the reality is the market for core system replacements is shrinking.  Many carriers are in the middle of a replacement or have already completed their replacement.  There are fewer and fewer deals to be had and more and more vendors in the marketplace chasing those deals.  

Let’s look at the numbers.   Donald Light’s recent PAS Deal Trends report shows that we’ve seen an average of around 85 deals a year over the last two years.  But there are more than 60 suite vendors out there.  Of those available deals, a very few key vendors – including Guidewire – will likely get half or more of them.   That leaves around 40 deals for the remaining 60’ish vendors.  That’s less than one each.  And that’s IF we assume the market will stay steady at 80-85 deals a year. This basic math shows that many core suite vendors will not get a single deal in 2017.  

So how can vendors satisfy their shareholders?  How can they generate growth and remain viable players?  The truth is some of them won’t.  But smart vendors are thinking about other options for growth.  And they have a few paths they can take. 

  • Sell things other than suites.  This is the tactic that Guidewire is showing with their recent announcement of the FirstBest acquisition and is also illustrated by their prior acquisitions of Millbrook and Eagle Eye.  Duck Creek is doing the same as shown by their acquisition of Agencyport.  Providing other core applications that carriers need allows a vendor to continue to grow their existing relationships, and allows them to create new relationships with carriers – even if the carrier doesn’t need a new core system.  Some vendors will purchase these additional applications; others will build them.
  • Sell to a different market – Insurity’s acquisition of Tropics lets them go down market to work with small WC carriers.  Their acquisition of Oceanwide gives them the ability to handle small specialty, or Greenfield projects.  While there are still plenty of deals to be done in the under $100M carrier market, most vendors can’t play in this space. Their price points won’t work for small carriers, and their implementation process won’t work. It’s too expensive and takes too many carrier resources.  The implementation process has to be drastically  different for a carrier with only 6 people in the IT department than it is for a larger carrier.   This strategy of going down market only works if a vendor can appropriately sell and deliver their solution to a small carrier while still making margin – and many vendors just can’t do that. 
  • Enter a different territory – Vue announced today they’ve entered Asia with Aviva; Sapiens entered the US by purchasing MaxProcessing.  And we see other vendors including Guidewire, EIS, and Duck Creek moving outside the US.
  • Sell services – many vendors provide cloud offerings – which provides a steadier stream of income.   Vendors such as CSC or The Innovation Group (prior to the split) had/have a large proportion of revenue coming from services.  Vendors like ISCS provide additional BPO services such as mail services and imaging.   

Any of these strategies are viable – but I predict we’ll see more vendors using them as the market for core system replacements shrinks.  Smart vendors are already thinking ahead, working on their long term strategy. 

Carriers who work with these vendors should be watching as well.  No one wants to work with a vendor that won't be here for the long term.  If you’re a carrier considering a new system –

  • Make sure your vendor is showing momentum – new sales.
  • Look to see what the signals are for their long term viability – will they be a survivor selling new suites?
  • Do they have the resources to create or acquire new capabilities like portals, analytics or distribution management?
  • Are they entering new markets, new territories or providing new service offerings?

If you don’t see these signals, you may want to start having a conversation with your vendors today. 

 

 

The thundering pace of insurance software acquisitions continues as Guidewire acquires Millbrook

The thundering pace of insurance software acquisitions continues as Guidewire acquires Millbrook
Several aspects of this deal stand out. It is the first acquisition by Guidewire, which until now has been a “we build it, we sell it shop.” It augments Guidewire’s capabilities in the hottest part of the technology landscape: Business Intelligence/Analytics. And it reinforces Guidewire’s strategy to capture the community and network effect benefits of its large customer base. Of course Guidewire will not be alone in offering BI/Analytics to its core systems customers. Nearly every major property/casualty software provider offers its own BI/Analytics functionality and/or partners with third-party providers. Cover-All’s 2010 acquisition of Moore Stephens Business Solutions is also an interesting precedent. Here are three questions to watch: Will Millbrook give Guidewire a competitive edge in vendor selections? Will other core systems vendors begin eyeing the remaining BI/Analytics firms? And what kinds of insurers will want to one-stop shop for core systems and BI/Analytics?