Banking on Consolidation

Survival of the Fittest: Managing Extreme Economic Uncertainty

The early months of 2023 have been marked by relatively high inflation, uneven GDP growth, and growing anxiety about a possible economic collapse. Within the technology sector, valuations are crashing, VC funding for Series C-F companies is drying up, and C-suites are tightening their belts with multiple rounds of RIFs.

Why it matters | Scenario planning gives strategy teams and executives a tool for anticipating the unexpected – and having plans in place for all probable outcomes.

• In times of economic uncertainty, it is crucial to adopt the “Vivaldi” approach – managing for success in all Four Seasons.

Zoom out | In the current economic slowdown, tech vendors face risks such as extreme competitive discounting, loss of key personnel, added scrutiny on large transactions, prolonged payment cycles, and of course, free-falling valuations and the IPO market all but frozen.

• Tech buyers, meanwhile, face constrained budgets, organizational reluctance to start new initiatives, longer approval cycles, and a much stronger focus on ROI and TCO.

Our latest research note provides actionable advice for buyers and sellers to make the most of murky economic conditions. Download a companion research note to review our predictions for the 6 most likely global economic scenarios.

We’re putting the finishing touches on the upcoming series of 360 Ratings in Agile Billing™. This round of ratings highlights new entrants, analyzes the future of wounded mega-vendors, and de-constructs the hype around usage and consumption billing models.

We expect to begin publishing individual ratings this month (May), with the full Agile Billing Buyer’s Guide & Market Ratings Report slated for publication in June.

How it works | MGI 360 Ratings are comprehensive vendor evaluations that assess tech vendors on their abilities to bring value and innovation to customers. These quantitative ratings score suppliers in five key dimensions (Product, Management, Strategy, Channel, and Finance) on a scale of 1-100.

Who should be excited | Buyers, sellers, and investors seeking to understand the billing market’s leaders and laggards – and the distinct capabilities that define them.

The comprehensive Agile Billing Buyer’s Guide & Market Ratings Report will include all 34 ratings, as well as 16 additional “Honorable Mention” vendors who will not receive formal ratings.

Stay tuned for 360 Ratings covering (partial list):

• Recurly
• LogiSense
• Salesforce
• BillingPlatform
• Zuora
• Chargebee
• and more.

In the meantime, revisit our most recent 360 Ratings:

• Icertis in Contract Lifecycle Management (CLM)
• Good Sign Solutions in Agile Billing

Banking on Consolidation

Banking titans are collapsing. Small and medium-sized banks are also struggling. (Western Alliance, for instance, lost 11% of its deposits this year.)

• To attract deposits, smaller banks will be forced to offer higher interest rates, while their cost of capital is also increasing. Meanwhile, the bigger players like JPMorgan Chase and Bank of America aren’t seeing an exodus of deposits – and they have bigger and stronger balance sheets.
• The Fed, under pressure from the White House, is considering changing the rules for midsize banks.

Proposed changes could include stricter capital and liquidity requirements, curbed compensation packages, and tougher assessments to test banks’ hardiness in the event of a severe economic downturn. (Think Scenario C or D in our model of likely near-term economic scenarios.)

• The cost of regulatory compliance may soon lead to a prolific period of consolidation. A finance sector consolidation will undoubtedly impact the tech sector – finance represents more than 10% of IT spend.

Between the lines | Expect to hear more about balance sheet quality and corporate liquidity.

• Like SVB and First Republic, many companies are holding long-term Treasury notes that are presently underwater. If these notes are held to maturity, there is no problem.
• However, if an exogenous event occurs and the company needs immediate cash liquidity, the notes will be sold at a loss.

Why you should care | The balance sheet quality issue could generate Black Swan (low probability, high impact) events that negatively affect tech companies’ ability to deliver reliably high-quality service.

• What if 20% of your enterprise cloud services and SaaS providers were impacted by this balance sheet time bomb?
• Would tech buyers be forced to pursue a more hybrid approach to cloud adoption?
• Many companies are already re-thinking their approach to op-ex and cap-ex, with some orgs shifting back towards a preference for capital expenditures.