Guidewire Makes Major Push to Small and Midtier Market by Acquiring ISCS
Robert Regis Hyle | December 20, 2016
In what is the largest ever purchase of an insurance software company, Guidewire Software announces it has entered into a definitive agreement to acquire ISCS. The acquisition will enhance Guidewire’s ability to serve those P&C insurers that prefer a cloud-based, all-in-one system supporting the insurance lifecycle, according to the news release issued by Guidewire.
“Like Guidewire, ISCS is a software company focused exclusively on serving P&C insurers,” says Marcus Ryu, CEO of Guidewire. “Their technology and expertise will enable us to provide a new option to our customers and augment our progress in delivering cloud-based products. We are excited by the opportunity to welcome the ISCS team and customers to our community.”
“We look forward to joining Guidewire and continuing our mission of serving P&C insurers,” says Andy Scurto, CEO and founder, ISCS. “The breadth of Guidewire’s offerings and the scale of its organization will enable us to provide additional value to our customers. We also appreciate the strong affinity between the companies in terms of focus and culture.”
According to Celent analyst Donald Light, this is a change in Guidewire’s acquisition strategy. Up to now, all (Guidewire’s) acquisitions have fit into—or added a single new element—to Guidewire’s InsuranceCenter Suite. ISCS has its own end-to-end suite in SurePower Innovation.
The privately held ISCS immediately brings more revenue and good market momentum with a solid sales pipeline to the publicly traded Guidewire, adds Light.
“ISCS’s focus on small and midsize insurers brings a few other intriguing possibilities. One is that Guidewire and its SI alliance partners will now aim at the large and very large insurer market, leaving the small and midsize market to ISCS,” says Light. “A second is that ISCS will become a vehicle for small insurer growth outside of the U.S. The third is that ISCS' more extensive cloud experience, especially with Amazon Web Services, will step up Guidewire's movement to the cloud.”
Karen Furtado, partner with Strategy Meets Action, believes the work ISCS has done with AWS in the cloud will benefit Guidewire.
“Guidewire and ISCS have been both dominant companies in their respective tiers of the market,” she says. “As insurers are turning more and more to cloud-based solutions in all tiers of the market, the ISCS platform will provide Guidewire full end-to-end cloud based capabilities. It will be interesting to see how the integration of these two companies will play out as one was a pure software company and the other was a full service offering.”
Jeffrey Goldberg, vice president of Novarica, points out the Guidewire/ISCS deal is part of a multi-year trend towards consolidation in the P&C core system space. Much of the M&A activity in the past has involved standalone components being bought by suite vendors—a response to insurers’ desire to work with a single third-party across all of their core system needs.
As with this deal, Goldberg points out the marketplace has seen smaller vendors snapped up by larger vendors, where, such as the case with Guidewire, the larger vendor is public company or a vendor with a very large private equity backing.
“Insurers are a risk-adverse group when it comes to technology licensing, and even when a smaller vendor has a better functional fit for a company there can be trepidation about weak balance sheets and a shorter runway,” says Goldberg. “Few insurers want to license a system that might be on life support due to lack of funds. When a larger company acquires a smaller or more niche vendor, it can mean the best of both worlds for the insurer.”
Guidewire has continued to show strong sales numbers in the large and mid-size insurer marketplace, but Goldberg points out that for continued growth they need to make sure they have an offering that appeals to a broader base of smaller insurers as well.
“Whether deserved or not, Guidewire has a reputation among smaller insurers for high cost and long implementation times, and recently Guidewire has been working hard to position their solutions for rapid deployment,” says Goldberg.
Some other large vendors have recently acquired solution vendors aimed at the small scale of the insurance marketplace, so it’s no surprise that Guidewire has made a similar move, explains Goldberg. This is a way to quickly establish themselves as a vendor that also caters to more clients of varying sizes.
“It’s likely Duck Creek Technologies is considering a similar acquisition, much the same way Guidewire’s FirstBest announcement followed quickly on the heels of Duck Creek’s acquisition of Agencyport,” said Goldberg.
“Looks like 2017 will be an even bigger year for acquisition integration within the core system space as well as continued consolidation opportunities from an ownership perspective on the horizon,” says Furtado.
No terms of the deal were announced. Guidewire anticipates it will close the transaction in approximately 60 days.
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