Sponsored Roundtable:
Tech-Enabled Investing

Investors back tech plays that help companies grow the bottom line

As more and more companies look to technology to bolster their offerings, M&A activity in the tech-enabled space is in - creasing. Mergers & Acquisitions convened a special round- table to discuss the role tech-enabled companies play in the market today. Abacus Finance hosted the event and the excerpted discussion that follows provides a range of perspectives on what middle-market dealmakers can expect from these companies going forward. Participants included private equity investors, a senior cash flow lender and an investment banker.

Danielle Fugazy, Mergers & Acquisitions (moderator): How do you define a tech-enabled business?

Michelle Noon, Riverside Partners (pictured):  It's a term with a meaning that's morphed over time. Technology-enabled means an injection of technology into a process-that was otherwise manual or capital intensive-to reduce capital intensiveness and increase operating leverage, which will help the business scale more efficiently. It can lend itself to a variety of different industries and companies.

Jonathan Barnes, Halyard Capital (pictured): To us, a technology-enabled business services company provides a corporate efficiency or productivity solution to its customers beyond simple labor outsourcing - the "this is not your core competency, it's ours" - by introducing a technology application into the solution, substituting technology for labor to some extent. At the same time, tech-enabled services companies don't differentiate themselves exclusively on the basis of technology per se. We like to invest in technology companies that have services "wrappers" around them, such as recurring, managed services or professional services around the technology.

Fugazy: What is the difference between a tech-enabled business and software as a service (SaaS) company?

Matthew Carroll, WestView Capital Partners (pictured): The terms have become more intermingled over time so there is overlap. Oftentimes, software as a service is positioned as a subscription "service" and it is sold to business or operational people. One of our investments, eSolutions, is a true SaaS model in the healthcare revenue cycle sector but its customers view it as a service that is provided to them by eSolutions. It just so happens that it is a highly automated one-to-many service because behind the scenes it is powered by proprietary software.

Noon: SaaS is an amorphous term that has changed meaning over time. We have a portfolio company called Pilgrim Software; it's a software company that helps companies comply with FDA and audit procedures. It's deployed in two ways. It's either delivered as your traditional licensed model, or it's delivered in a SaaS model. The point is the term can be nebulous.

David Joncas, Aeris Partners (pictured): There are fundamental differences between traditional tech-enabled services companies and true SaaS companies. Traditional tech enabled services companies sell a service and the extent of technology enablement can vary widely. Tech-enabled service consumers are generally less interested in the enabling technology used behind the scenes. In contrast, the first "S" in SaaS stands for software - so the emphasis is on the software. SaaS users consume software and make purchase decisions based on software features, functionality, performance and cost.

Devin Mathews, Chicago Growth Partners: The last "S" in SaaS is the most important one, and that is the service. When you sell to the lower end of the market it's all about the service. Small companies really don't care about what's behind the browser or the device; they just want it to work the way they expect. A truly tech-enabled service would be a SaaS model -- a subscription-based service that is delivered through a browser or a mobile device where you are paying a monthly or annual fee.

Fugazy: What industry verticals do tech-enabled businesses or SaaS businesses lend themselves to?

Joncas: SaaS is relevant to almost any industry that consumes software. Industry verticals that are complex or dynamic, especially where there's a lot of demanding significant domain expertise or change is required, benefit from SaaS. Healthcare, finance and insurance are great examples of complex industries benefiting from SaaS applications. Vertically-focused SaaS companies gained early momentum by capitalizing on industry complexity and expertise, and have proliferated. Salesforce.com is a classic example of a functional, horizontal SaaS play that transcends industry lines.