Automation has become a core strategic priority for almost all enterprises, seeing the need to compete in a digital-first economy with streamlined, connected operations that drive greater value from internal resources. Intelligent Automation is the goal – an enterprise where processes are not only automated, but leverage and interact with Artificial Intelligence (AI) technologies to drive smarter, realtime decisioning that optimises enterprise performance.
A redefinition of the Future of Work – how humans interact with technologies and performance is enhanced by the use of robotic software and AI technologies. It’s an initiative that is high on the C-Suite agenda and the ecosystem that surrounds Intelligent Automation is growing incredibly fast, with software and services players alike achieving very high valuations in their fundraising and M&A activity.
Robotic Process Automation (RPA) – the first step on the route to Intelligent Automation
Up until a few years ago, Business Process Outsourcing, using third party providers with large operations (people) in off-shore markets to manage low-level processes, was a key part of an enterprises’s efforts to relieve the cost burden (e.g. data capture and processing/call centres) from undertaking substantial amounts of manual tasks.
Over the past few years RPA has been disrupting this model, enabling organisations to instead deploy software that uses software robots, or ‘bots’ to automate a repetitive process in an organisation. It works by ingesting data from multiple sources and systems that ‘learn’ how to replicate a process. This minimises the requirement for human interaction, reduces time-taken to perform tasks, increases speed of processing and operates 24/7.
Humans are therefore able to be released from laborious manual processing tasks and can be upskilled to either monitor the robots, focus on analysis rather than data-entry, or indeed
deploy their time more impactfully elsewhere in an organisation. The reality though, is that a near-term ‘benefit’ of RPA software is not only speed and time-saved, but also a reduction in employee numbers, enabling companies to make substantial cost savings (with many corporates measuring both productivity gain and annual savings as measures of success), driving both internal efficiency but also profitability.
Organisations are currently in the throws of mapping processes for RPA – and implementing bots from the front to back end of their businesses. The financial services industries are as expected, the most advanced – however this is truly a software with use cases across all industries, from automotive to manufacturing to healthcare and the public sector. Across these large global enterprises, the number of potential processes that could be automated can run into the thousands and with one ‘bot’ per process, that’s a vast market opportunity.
All of this is partly why the core software vendors – UiPath, BluePrism and Automation Anywhere, the three largest players – have been enjoying huge valuations in their recent fundraises with all of them reaching ‘unicorn’ status.
However, these valuations are not just reflective of the nearer term market opportunity. With the pace of adoption, many enterprises will have substantially progressed their RPA implementation programmes in the next few years with industry commentators forecasting the value of the RPA market to be worth c.$3bn by 2021. Therefore, in order to justify sky-high valuations, the business case for these software providers needs to be about so much more. UiPath’s latest valuation alone, was over 2x the estimated value of the entire market in two years’ time.
As a result, software vendors will need to think way beyond the current use case of their bots. RPA is seen as only the initial step to creating an intelligent enterprise. It’s a critical first-step to intelligent automation and critical for digital transformation but doesn’t digitally transform process all on its own. The Intelligent Automation roadmap for an organisation is therefore key – only by combining RPA with dynamic workflow, AI/machine learning, natural language processing, chat-bots (to name a few), organisations will then be able to automate, end-to-end, critical decision making and customer interaction. Bots that replicate and automate low-level tasks are one thing, but these vendors are going to need to create sophisticated, intelligent, hyper-connected bots that go beyond the mundane and drive genuine intelligent decisioning.
M&A in the sector
As the major software vendors focus on fundraising and organic growth, much of the M&A in the sector has been focused on the services ecosystem that surrounds RPA and Intelligent Automation. Many automation consultancies are experiencing comparably high levels of growth when compared to the software vendors, and are playing a pivotal role in helping organisations identify potential processes for automation, create structured data-sets that can drive the bots and implement the RPA software itself. As is typical, the software vendors are focused on recurring licence revenue and high gross margin business models to support their lofty valuations and are reliant upon consulting partners to sell and successfully deliver their bot implementations.
Horses for Sources, an industry analyst, estimates that the services element of the RPA market is c.3x greater than the annual software market size.
As automation is such a key part of the digital transformation story, there is a large ecosystem of consultancies, including IT consultancies and accounting firms, building Intelligent Automation practices that will enable them to ensure they are able to capture the ‘automation’ slice of the substantial digital transformation budgets.
Additionally, traditional BPO’s are building automation teams, for two key reasons –
- their own business models are being increasingly disrupted by intelligent automation so they need to defend against revenue erosion by owning this capability and dealing with the significant internal backlog that would benefit from intelligent automation adoption and
- most have established digital consultancies enabling them to cross-sell higher value services to their large enterprise client bases.
Of course, given the truly global nature of the opportunity and the substantial growth available in the market right now, M&A is seen as an effective route to acquiring immediate scale and capability in this multi-billion-dollar market and buyers are willing to pay premium prices.
Results International advised the shareholders of Symphony Ventures on its sale to SYKES Enterprises, which acquired the business for a compelling 2.0x forecast calendar year 2019 revenues (the deal closed in October 2018, 15 months before this was realised). The level of talent that organisations currently have available is far below the demand for automation services, so we certainly envisage consolidation continuing in an effort to capture available revenues and market share.
In the software ecosystem, below the three largest vendors, UiPath, Automation Anywhere and BluePrism we see a lot of consolidation potential. UIPath and Automation Anywhere may well join Blue Prism on the public markets with a high valuation IPO (a likely potential exit route for their backers who have invested at very high valuations), however we can see how other vendors, – Softomotive, Thoughtonomy and Workfusion to name a few, could be interesting targets for consolidation, potentially by the large diversified enterprise software vendors which could naturally see automation technology as a key connector across all of their vertical and horizontal offerings. These smaller rising stars, which have perhaps been a little more conservative with their funds raised, could be highly attractive and valuable targets.
There is also a growing set of vendors which have developed software for helping enterprises manage the human to bot interaction or providing bot ecosystem optimisation solutions for organisations that have a large estate of bots deployed across their enterprise that we envisage being key rising stars in the market as it starts to mature.
We are extremely excited about this very fast-growing market that is truly changing the face of the enterprise. If you are interested in discussing this further – please do get in touch.