Chicago — One would need only a quick glance at the vendor space over the last few months to see how much things have changed. In addition to being notable on their own merits, the dual acquisitions made by Redwood City, Calif.-based Oracle Corp. and other deals involving familiar names such as Fiserv, are a sign of things to come.
Indeed, Oracle’s assimilation of AdminServer and Skywire Software, barely a month apart, may have marked a sea change in the vertical. “We haven’t seen a predator the nature of Oracle in this ecosystem before,” says Matthew Josefowicz, director, insurance for New York-based Novarica, noting that Oracle’s move may prompt other global technology giants such as Microsoft, SAP and IBM, who have long served the market from the periphery, to reconsider how they approach the market.
In addition to software giants looking to solidify their place in the insurance realm, insurance-specific vendors also are increasingly drawing the attention of private equity firms. It is vital for insurers to discern whether the new owner purchased the vendor for its growth potential or to augment current solutions, or if the acquisition was seen as a chance to buy and flip the company, which may well augur disruption in the next 24 to 36 months, Josefowicz says.
“Companies that see their software providers bought by financial investors need to wonder what the motivation is,” he says. “Is it to invest in it and grow the business and have a long term commitment to scale it up and solidify the customer base, or is this a short-term play, especially now that the feeding frenzy has started?”
Also factoring into the equation are traditional portfolio vendors, who may be eyeing smaller vendors as a way to round out their offerings, or may look to acquisitions to keep a company out of the hands of competitors. “There’s a sense from the portfolio players that there’s a new class of competitors in the marketplace,” Josefowicz says.
Yet, while pondering the strategic implications of this spurt of mergers and acquisitions (and wondering who is next) can seem like something of a parlor game, for the technologists who rely upon the solutions of the companies involved, it’s much more serious. Josefowicz says among the things insurers can do to protect themselves in the event a vendor of theirs is acquired is to demand base code escrow from their vendors, and to make sure service level agreements explicitly state the terms of the agreement.
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