12/1/09 7:01 am PT – Initial post. Analysis to follow.
12/1/09 11:38 am PT – Analysis added
12/2/09 7:00 am PT – Free SageCircle webinar on acquisition
Replay of the webinar “SageCircle Analysis of Gartner’s acquisition of AMR Research” is now available. To receive a link and password to watch a streaming version of the webinar please email “info [at] sagecircle [dot] com”. Please include your job title and company name
Gartner’s acquisition of AMR Research for $64m, approximately 1.5x revenues, is interesting in that it does not seem to fit neatly into any one of these rationales:
- Additive to expand research coverage, consulting, events and other services
- Acquire client base
- Acquire sales representatives
- Take out direct competition to improve pricing power
- Prevent competition from grabbing an asset that would be used against Gartner
Approximately 75% of AMR’s enterprise clients were in manufacturing/supply chain which is not consistent with Gartner’s core CIO organization. Gartner CEO Gene Hall has doubled down on IT since taking over in 2004 and eliminated non-IT focused business such as Vision Events. So does this represent a change in strategy? Perhaps the Datamonitor-Ovum strategy of going after both business and IT leaders has caused Hall to modify his approach?
AMR is primarily focused on ERP/enterprise applications, manufacturing, supply chain, retail, and sourcing. While Gartner does have some overlap, it is very uneven from one area to another. While Gartner does have a manufacturing vertical, the number of analysts is small, only seven. Furthermore, Gartner does not have brand equity in the manufacturing space so acquiring AMR manufacturing assets makes sense. Gartner’s retail analysts number just six so combining those with AMR’s analysts also makes sense. However, AMR has lost one of its top retail analysts, Janet Sherlock, just this week. Sourcing is an area that is one of Gartner’s strengths with 40 analysts listed in that space. AMR’s sourcing research took a huge blow when Phil Fersht left in late September so that particular area might not be of interest to Gartner. ERP and supply chain are grouped together at Gartner with 27 analysts. While Gartner has a strong reputation in enterprise applications, including ERP, it has less of a brand in supply chain so combining AMR supply research would be logical.
AMR’s event business is tiny in comparison to Gartner’s with only two or three targeted events per year with approximately 500 to 700 attendees each. Even if Gartner wanted to expand into other types of enterprise clients, it would not have to buy AMR to launch these types of events.
Enhancing Gartner’s advisory/consulting assets might be a possible motivation. As published research becomes more and more commoditized, enterprise clients turn to analyst firms for personalized advice and targeted consulting. Gartner has kept its analyst team relatively constant at 650 even as it has more than doubled the sales force to 952 since late 2004 (according to 3Q09 earnings call). At some point Gartner cannot simply increase the productivity of existing analysts; it must add more analyst headcount in order to support the client inquiry requests in a timely fashion. Adding some of the 40 experienced advisory analysts at AMR would provide immediate inquiry “inventory.” On the consulting side, the aspects of the consulting business that have done well during the recession are those that help enterprises manage their spending with vendors. AMR does have core experience in this area for those topics it covers so this could be net add as well.
Buying an established client base, especially if there is little overlap with Gartner’s existing clients, could also be a major motivator. Up-selling and crossing-selling existing AMR clients could easily be a winner for Gartner as its breadth of products and services for the CIO’s organization far surpasses AMR’s. During investor events both Gartner and Forrester consistently say that the addressable large enterprise market is underpenetrated. Getting established relationships with 500 to 700 enterprise clients would be an asset that could be immediately exploited.
A potentially very valuable asset from Gene Hall’s point of view is AMR’s ~45 sales representatives. One of Hall’s key strategies since taking over has been expanding Gartner’s sales force. Even during the recession Gartner has increased its sales headcount – adding 19 in Q3 alone – even as Hall has told Wall Street that Gartner will not return to 20% sales force growth until late 2010 or 2011. One of Hall’s themes in recent investor calls has been increasing the productivity of the existing sales force. Retaining some or all of AMR’s experienced sales representatives would be a way to get productive sales resources more quickly than the 12 to 18 months that it normally takes to get a new sales hire up-to-speed. Remember, Hall consistently said that META’s sales force was a motivator for that acquisition.
Because AMR’s client base is primarily non-IT managers, this move would not reduce competition and enhance pricing power like Gartner’s META and Forrester’s Giga acquisitions did earlier in this decade. We don’t see this as a motivation.
Finally there is the issue of whether Gartner was keeping an asset out of the hands of a competitor. Certainly Gene Hall has done this before with his snatching of META out of the grasp of Yankee Group. There were some other logical acquirers of AMR such as Corporate Executive Board, Datamonitor-Ovum, Forrester, or even IDC (for the Manufacturing Insights subsidiary). All of these companies have made acquisitions recently, talk about doing acquisitions, and have the financial resources to do acquisitions.
Our take is that the AMR acquisition is not simply a “take out the competition” move. It is likely to be a complex mix of different motivations. This means that there is great uncertainty from a vendor point-of-view as to what might happen to AMR’s analysts and research coverage. Even though AMR CRO Bruce Richardson said in this blog post that the “the intent is to maintain a ‘business as usual’ mindset” we recommend that clients and vendors take any statements from AMR and Gartner on “business as usual” with a huge grain of salt. This was also the official message from META and Gartner until the day the acquisition closed at which point it was slash-and-burn across the META organization with the exception of the sales team.
The key question for any analyst firm merger & acquisition (M&A) activity is whether the acquired analysts – the core intellectual property value – stay with their new employer or leave. For example, in the case of Gartner’s acquisition of META more than 50% of the analysts left voluntarily or through buyouts within a few months. However, Forrester with its Giga and JupiterResearch acquisitions retained most of the analysts. Even though the recession is still in force, there have been signs that hiring is picking up in the analyst ecosystem and broader IT marketplace, which will give AMR analysts and sales representatives options to stay (at least the ones Gartner would want to retain) or go to other firms, vendors, or enterprises. For example, Datamonitor-Ovum would be a logical home as it moves to expand aggressively.
Free SageCircle Webinar:
SageCircle will hold a webinar at 10 am US PT on Thursday to discuss what Gartner said in the AR call as well as answer questions you might have. You can register at this webpage. Please feel free to forward this invitation to your colleagues.