MGI Research

Thursday, May 25th

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Zuora AMPs Up - Acquires Leeyo for Revenue Recognition Leadership

Revenue RecognitionSummary: On May 10, 2017 Zuora (MGI360 Rating: 61 Outlook: Positive) announced a definitive agreement to acquire Leeyo (MGI360 Rating: 52 Outlook: Neutral) a provider of automated revenue recognition solutions.
This transaction underscores the increasing customer demand for revenue recognition automation and confirms earlier MGI Research forecasts and other research on Automated Revenue Recognition (ARR) tools. We see this deal as a smart move for Zuora and a positive development for Leeyo and Zuora customers. 
 
Key Issues 
▪ How will companies automate core business processes by 2020? 
▪ How are best-in-class companies digitizing new recurring revenue business models? 
▪ Which vendors will make the transition to agile applications? Who are the losers? 
 
With the deadline to adopt ASC 606 looming, public and private companies need to apply automation to their revenue recognition efforts. By adding Leeyo’s RevPro to its product portfolio, Zuora will have the product and deep domain expertise to sell into the finance function. The Zuora-Leeyo deal confirms a 2015 trend forecast by MGI Research and is a harbinger of more acquisitions to come in the Agile Monetization Platform (AMP) solutions market overall, and the revenue recognition space in particular. A number of AMP vendors, particularly the legacy financial applications vendors, now risk looking as ERP-like laggards. 
The Deal 
In a cash and stock transaction expected to close in June, Zuora has deftly picked up Leeyo Software, a San Jose, CA headquartered company with 100+ employees (MGI Research estimate). As the top-ranked standalone revenue recognition vendor (MGI 360 Rating: 52), Leeyo has over 100 customers, of which approximately a dozen such as Symantec, ZenDesk, Salesforce.com, SurveyMonkey and others are common with Zuora. Having been partners for three years the two companies have experience working together and also share some common implementation partners. The Leeyo product will be re-branded as Zuora RevPro, and sold on a stand-alone and integrated basis, depending on the customer’s choice. 
Standalone billing vendors who have invested in revenue recognition functionality are vindicated, but clearly cannot afford to stand still. For the large, legacy ERP vendors who have underinvested in revenue recognition from a product, marketing, and sales perspective may find their accounts under pressure from the hard-charging Zuora sales force. These are precisely the accounts that Leeyo has won, in spite of its low profile and minimal sales force. The regulatory requirement to meet ASC 606 is such that even with solution that is discounted to zero, customers need a viable solution and will pay to have robust tools. At a time when the AMP market has been drawn into a CPQ vs billing conversation, this deal upends that dialog and re-orients it towards revenue management, anchored by the twin pillars of billing and revenue recognition. 
Additional detail is contained in the research note attached below.
Bottom Line 
Organizations of all sizes can no longer rely on a cocktail of spreadsheets, manual effort, and customized ERP accounting packages to meet their needs for business agility and timely, accurate financial operations. The deadline to adopt ASC 606 is further business motivation to upgrade the tools and capacity of the finance team. Zuora’s acquisition of the leading best of breed revenue recognition tools vendor, Leeyo, is an acknowledgement of this market requirement. In our view this deal is a net positive for Zuora and Leeyo customers and prospects, and a shot across the bow of its competitors. As market for Agile Monetization Platform (AMP) tools shifts from the progressive digital business leaders to the mainstream, increasing attention and dollars will flow to the vendors with broader AMP capabilities. 
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