For the past decade, any software vendor that touted new levels of automation and data-driven insights appeared to have seemingly unrestricted access to capital. Now, as valuations drop and fundraising becomes more difficult, founders and company leaders are facing a difficult decision: look to be acquired or try to go it alone.
At Celonis — which, at an $11 billion valuation, is one of the buzzier software upstarts — that question appears to have already been decided. Enterprise software giants ServiceNow and SAP made offers in the past year to buy the process-mining firm, according to sources familiar with the deliberations, which were turned down because the Celonis leadership team wanted to remain independent.
SAP declined to comment. ServiceNow also declined to comment on the offer, but said its partnership with Celonis is “helping customers drive innovation and, ultimately, make the world work better for everyone.”
In an interview, Celonis CEO Alex Rinke likewise declined to comment on the offers, but he emphasized the importance of Celonis’ role as a standalone vendor.
“As an independent company, especially the funding and position we have in the market … in many ways we are better-positioned,” he told Protocol. “There has never been an incumbent that has been able to anticipate and lead a seismic disruption of their own category.”
Process mining lets companies analyze their business processes — any series of tasks generated through the normal course of doing business, such as receiving an invoice — in order to make operational improvements. But process mining on its own isn’t enough to drive the types of operational efficiencies enterprises are seeking, which is why it’s often lumped together with workflow management and robotic process automation.
Recent merger activity, like Microsoft’s purchase of process-mining company Minit or IBM’s acquisition of startup myInvenio, points to a logical connection between companies that sell ERP software and process-mining companies. Large ERP vendors already have operational and process data in their systems, and by plugging in a process-mining component, these companies can theoretically provide more value to their customers by making their processes faster or less error-prone, for example.
That’s what’s driving interest in this space from SAP and ServiceNow. SAP, for example, acquired Celonis rival Signavio in 2021, a deal that drove a wedge between the once-close partners, according to sources. And despite the failed acquisition attempt, ServiceNow still has a close relationship with Celonis.
It’s not safe to go alone
As economic conditions worsen, industry analysts expect companies like Microsoft and ServiceNow to be better-positioned against a downturn compared to those that sell standalone services or applications. The bigger companies can offer a more expansive suite of services and enjoy a much larger swath of existing customers to pitch higher-priced packages. That’s appealing, as it's traditionally much more expensive to acquire new users than to upsell existing ones, and it’s why analysts at firms like Morgan Stanley are less bullish on smaller-but-growing companies like Asana and Couchbase.
Even before the stock market decline — driven in part by a major sell-off of software shares and concerns of a looming recession — there were questions over how successful process-mining companies could ultimately be as third-party providers. And while Celonis has raised a total of $1.4 billion in funding, the investment environment is much different than when the company raised its last $1 billion round last June.
Industry consolidation between process-mining, ERP and RPA players is a sign to some that standalone process-mining companies can’t thrive on their own. Even Celonis has expanded into both workflow management and automation using a “build, buy and partner” strategy, indicating the company will need to do more for its customers than just process mining.
The fact that ServiceNow, Microsoft, IBM and SAP have all shown interest in acquiring or building their own process-mining capabilities could be a sign that the market is being commoditized. If companies from RPA giant UiPath to smaller adjacent players like Appian can all offer competitive process-mining services, a standalone vendor may be less appealing to end purchasers.
And if Celonis can’t succeed on its own, it might prove that a platform play is more viable than the focused approach of a single vendor. That would be a feather in the cap for ERP companies who have been pursuing that strategy for years.
But Rinke sees no need to panic. With strong financials, a large share of the burgeoning market for process-mining technology and an increasing need for businesses to glean savings wherever they can, he believes Celonis well-suited to thrive in a hypercompetitive sector.
If you find an Oracle ERP customer that uses SAP process intelligence to optimize their Oracle processes, I’ll give you $100.
The challenge for firms like SAP and Microsoft that are angling to offer process mining as a feature alongside their own applications gets to the heart of how the technology works, according to Rinke. For process mining to be efficient, it has to be able to gather data from many different systems made by many different vendors; few process-mining customers buy all their enterprise software from one company.
Achieving that visibility has been historically difficult for large vendors who are largely focused on their own applications, he argued. And given many of those software providers are bitter rivals with one another, it’s unlikely they’ll ever have the ability to bridge disparate programs to the same success as an independent vendor.
“If you find an Oracle ERP customer that uses SAP process intelligence to optimize their Oracle processes, I’ll give you $100,” said Rinke.
Celonis currently owns over 80% of the market, per Rinke, and has “hundreds of millions” in annual recurring revenue, which counts future sales. An independent assessment of Rinke’s market share claims could not be obtained.