Descartes Systems Group, a Canadian logistics application and service provider, purchased U.S.-based trade content provider Customs Info. The deal will impact both buyers and providers of global trade content and technology.
On 2 June 2014, Descartes Systems Group announced it has acquired Customs Info for $41.5 million, an amount comprising $36.1 million in cash and the remainder in stock.
This move gives Descartes valuable content to populate trade compliance and logistics systems — including information on tariffs, duties, regulations, trade agreements and rules of origin — along with related research tools. Overall, this is a positive move for Descartes, which will result in an attractive offering for customers. Providing content is a very different business from software, requiring different employee skill sets and investments. Descartes has some experience in this area with a team of nearly 50 professionals that maintain ocean rates and contracts.
Customs Info has several partnerships with Descartes competitors, and this deal might impact these relationships because many buyers are reluctant to buy content from a software provider that competes with a provider they already use. These buyers are often skeptical that the partnership between the two providers will work effectively, even if the providers state that it won't be a conflict.
Descartes has an extensive application portfolio, having made 19 acquisitions in the last six years, spanning transportation management, compliance, fleet routing and scheduling, GIS, and an electronic data interchange (EDI) value-added network. While Descartes has posted suitable growth rates over this period, we believe much of this growth has come from the acquisitions, with the company offering little visibility into the rate of organic revenue growth.
Customs Info has partnerships with Oracle and SAP. We do not expect Oracle or SAP to build out trade content or make similar acquisitions, as both have stated they are not interested in providing global trade management (GTM) content. However, this acquisition might force a reassessment of which content partners they actively promote because of overlaps in Descartes' execution system portfolio. We do not expect Descartes to overtly dismantle these relationships, as they give the company direct access to SAP and Oracle, and Descartes already works with SAP by providing access to its logistics network.
There are few pure-play trade content providers (e.g., MK Data Services); however, other providers of global trade content, including some software providers, will likely benefit from any short-term confusion or hesitation from buyers. Other options for buyers include outsourcing to a third party (e.g., a logistics service provider) or building trade content manually.
Current Descartes customers: Expect this deal to have a minimal short-term affect but positive future potential, as you can benefit from receiving software and supporting content from one source. It will also add people trained in global trade compliance and access to new tools.
Current Customs Info customers: Be aware that this deal could cause a conflict of interest in situations where companies are using supply chain execution systems that overlap or compete with Descartes software. Seek written continuity-of-service assurance from Descartes and your current GTM software provider and investigate alternate sources for trade content. Customers that are not using competitive systems should have less near-term concern.
Prospective GTM, Descartes and Customs Info customers: Evaluate the content services as part of an overall portfolio, not as a stand-alone service. Weigh this evaluation against the value of receiving this content from an existing provider of your software or a noncompetitive source.