IHS, a provider of information services to the energy, government, and discrete manufacturing industries, is acquiring two environmental health and safety (EH&S) providers, ESP and Dolphin Software. IHS will be paying a combined $43.5M for the two firms. If IHS can integrate the customers and products successfully and create a presence as an EH&S software provider, the ROI will be significant. Environmental compliance is not new to IHS, but being a packaged software vendor is IHS’s current regulatory content and environmental information product is ESH Management, which combines CyberRegs and IHS Specifications and Standards to provide updated information on evolving government regulations and substance properties. The company acquired EnvironMax in late 2007 to provide systems for managing hazardous materials and waste streams for its clients in the federal and Department of Defense (DoD) regulated environments. With the acquisitions of ESP and Dolphin, IHS expands to also manage climate change and greenhouse gas (GHG) inventories, task management, and chemical inventory management. Consider the following: - ESP’s opsEnvironmental product provides templated business processes with enforceable workflows for standardizing data collection, auditing, and reporting functions—a declaration of environmental compliance. It also contains modules for air, water, and waste emissions monitoring, which plays well, given the emerging market need for modern IT to support GHG monitoring and reporting. The other product, ecoAsset Manager, is targeted mainly at emissions trading scenarios, correlating inventory allowances and credits with financial information.
- Dolphin brings IHS the capability to use attribute-based information relative to chemical substances for tracking chemical inventories. Dolphin had recently positioned itself as an enabler for closing the feedback loops with the product development organization and sourcing and procurement departments to support eco-friendly design and sourcing practices. With the increasing gyrations from the EU’s REACH compliance mandates, as well as the movements by powerful retailers like Wal-Mart to restrict specific substances from its shelves, adding the chemical data management capabilities from Dolphin is potentially a timely move on IHS’s part.
IHS’s primary business is information provision and management, so morphing into a provider of commercial software products is a challenge. EnvironMax, ESP, and Dolphin are all pure-play software companies, with the products built on different platforms: EnvironMax is Oracle based, ESP is Microsoft based, and Dolphin is Java. Maintaining confidence within the acquired customer bases on future product directions and support should be a priority for IHS in order to not only prevent any attrition of the installed bases, but also for maintaining momentum in the active sales cycles at the time of acquisition. Also, for IHS to successfully make the transition from information service provider to commercial software product provider, creating market awareness in that new role and training its sales force accordingly is a must. As part of this transformation, IHS will find itself in closer competition with EH&S incumbents, such as ESS, Enviance, and SAP, in addition to existing competitors like 3E Company, which also offers services such as material safety data sheets (MSDS) authoring and regulatory data management. Luckily for IHS, from the perspective of enterprise application integration, the company’s information services are already integrated with Oracle’s E-Business Suite in DoD environments. With these acquisitions, IHS inherits ESP’s NetWeaver certification status. Is this a precursor for consolidation of the EH&S space? Mergers and acquisitions are not new to the EH&S market: - 3E Company has made strategic acquisitions to broaden its offerings with Ariel, HSE Systems, and MSDS Solutions.
- ESS has grown through multiple acquisitions, including RMS Systems and Essential Technologies.
- Rockwell Automation, in effort to broaden its process-industry positioning, acquired Pavilion Software, obtaining the company’s emissions modeling and monitoring capabilities with the purchase.
The EH&S compliance market still has the characteristics of an emerging market segment. Most of the vendors are just starting to master enterprise sales skills. They lack effective management of partnerships and alliances, as well as packaged integrations with enterprise systems. These characteristics make the EH&S segment a logical target for consolidation by larger enterprise vendors seeking to expand their footprints in this arena. We expect more acquisition activity in this space, as larger enterprise vendors, in addition to EH&S vendors, aim to capitalize on the surging environmental compliance market. As always, I welcome your feedback and ideas—sjacobson@amrresearch.com.
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