On May 10, 2017,  Zuora (MGI360 Rating: 61 Outlook: Positive) announced a definitive agreement on its acquisition of 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 its customers as well as Leeyo’s.

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 functionality 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 being branded 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. Approximately a dozen of these, including Symantec, ZenDesk,, and SurveyMonkey, it shares with Zuora. A three-year partnership has afforded the two companies experience working together and some common implementation partners. The Leeyo product will be rebranded as Zuora RevPro and sold on both a standalone 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. 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 kinds of accounts that Leeyo has won in spite of its low profile and modest sales force. The regulatory requirement to meet ASC 606 is such that, even if a solution is discounted to zero, customers need a viable solution and will pay to have robust tools. Although the AMP market has recently been absorbed by the CPQ versus billing conversation, this deal upends that dialog and reorients 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 motivation for businesses to upgrade the tools and capacity of their finance teams. 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 the market for Agile Monetization Platform (AMP) tools shifts from the progressive digital business leaders to the mainstream, we will see increasing attention and cash turning towards the vendors with broader AMP capabilities.