ServiceMax is heading to the public market via a merger with a special-purpose acquisition company (SPAC), Pathfinder Acquisition Corp, in a deal that values the field service giant at around $1.4 billion.
Founded in 2007, ServiceMax was once owned by GE before being acquired by private equity firm Silver Lake as its majority shareholder in 2019. Possible future ownership of the firm has been a topic of conversation each time I’ve talked with ServiceMax CEO Neil Barua ever since, with the top man always taking a ‘wait and see’ stance.
While there’s long been speculation that Salesforce, whose Ventures arm has a stake in ServiceMax, would be a logical buyer, the immediate direction of travel has now been revealed as a listing on NASDAQ following a “business combination” with Pathfinder. Upon closing of the transaction in Q4, ServiceMax will become a publicly-traded company, listed under the symbol “SMAX”.
Barua, who will continue to lead the business post-transaction, says it’s taken “an immense amount of work to get here”:
ServiceMax was founded in 2007, was a super hot start-up and then sold to GE for close to $1 billion in 2016. Silver Lake then acquired ServiceMax from GE in 2019, about two and a half years ago. [There have been] three meaningful changes since then. A new leadership team drove significant operational and organizational improvements, making sure the profile of our organization embraced the culture of being customer obsessed and win together. We then created a focused GTM and product strategy based on clarity around the verticals we play in.
And the third meaningful change? That would be around the relationship with Salesforce, he explained:
We’re natively built on the Salesforce platform. This was a conscious design decision made by our founders and something that has served us well. We tap into Salesforce’s scalable infrastructure, while allowing us to focus on innovation and product differentiation. What’s been exciting over the past couple of years is a sustained partnership between our two companies. As you know, Salesforce developed their own field service offering, largely leaning on their acquisition of a scheduling company, Click, as their foundation.
But what ServiceMax delivers to clients is complex and Salesforce knows this. Which is why they recognized their customers are better served by licensing our ServiceMax asset-centric capabilities developed and worked by us. To be blunt, Salesforce is bullish enough on ServiceMax’s capabilities and prospects that they also spoke with their checkbook with the Salesforce Ventures investment and resource alignment. We already have customer wins that highlight our tight go-to-market alignment.
Pathfinding the future
So what’s in it for Pathfinder - and come to that, who is Pathfinder anyway? According to CEO David Chung:
We are a purpose-built, institutional grade SPAC, co-sponsored by two leading tech investment platforms in HGGC, a leading middle market private equity firm based in Palo Alto, where I am an Executive Director, and Industry Ventures, a leading multi-strategy venture capital firm.…We launched in February of this year at best of breed terms for a first-time SPAC of a fifth of a warrant.
As to the appeal of ServiceMax, he explained:
We view the field service management software market as a very attractive market. It’s a big market, with a TAM [total addressable market] of over $9 billion. It’s under-served, and the served portion of the market is growing about 10-15% per year. There are some favorable tailwinds that are driving the need for more automation and increasingly sophisticated software solutions for field service management. So that’s point number one. Secondly, against this favorable industry backdrop, ServiceMax is the longstanding best of breed player, and it’s the pure-play way to invest in this exciting growth space.
As for those tailwinds he mentioned:
ServiceMax is a company that is at an inflection point toward accelerating growth, driven by several distinct forces. So first you’ve got the underlying secular growth tailwinds in field service management that I’ve talked about. You also have a post-COVID macro-recovery in some of the key verticals and end-markets that the company serves, as well as increased urgency on the part of most companies out there to push digital transformation faster since we’ve all lived through COVID and we’ve all seen the digital acceleration that’s happened in all aspects of our lives and it’s happening here as well. There’s also an important element here of self-help with the impact of two and a half years of intensive operating improvements led by Neil and his team beginning to show up in the numbers.
In addition, there’s that Salesforce relationship angle bubbling through again as he added:
Perhaps the most exciting part of the acceleration story is that there’s an important growth catalyst in the form of a significant strategic partnership with Salesforce.com and a new product refresh called Asset 360 that was part of that, which makes this combined go-to-market effort, in our view, a game-changing force in the marketplace. Asset 360 was introduced late last year, so the impact of this partnership will be an important additional accelerant of growth going forward which we should see for years to come.
That emphasis on the Salesforce side was echoed by Lindsay Sharma, Pathfinder’s Chief Investment Officer, who pointed to the position of ServiceMax within the Salesforce partner ecosystem, citing Veeva and nCino as “SFDC Ecosystems peers” who are “industry leaders built on similar platform”.
Meanwhile ServiceMax CFO Simon Edwards tipped his hat to Salesforce CEO Marc Benioff and his executives when he noted:
As part of the Salesforce ecosystem, we know the CEO and management team well, and we are impressed by both their domain expertise as well as the team they have built.
Salesforce Ventures plans to retain its investment, said Chung, as do Silver Lake and GE. Between them they will own just under 80% of the new company, while Pathfinder’s shareholders, investors and sponsors will own just over 20%:
One of the reasons we were really drawn to this opportunity is that Pathfinder’s shareholders and new investors have the opportunity to step into an investment alongside these extremely savvy tech investors in Silver Lake and Salesforce at a point in their investment horizon where we believe they are still a ways off from their exit window. To lend credence to that, Silver Lake and Salesforce will not sell any of their shares as part of the transaction, and this was something that was made clear to us from day one. And, in fact, there are no sellers at all from any ServiceMax shareholders in this transaction.
Overall, concluded Chung, it’s time for the next phase to kick in:
ServiceMax is very well positioned to take advantage of secular tailwinds, benefit from a deep partnership with Salesforce, and continue to scale to organic and inorganic levers.
An interesting turn of events, reflective of the potential of the market in which ServiceMax operates. As well as the TAM cited by Pathfinder and ServiceMax yesterday, I note also some new research from another diginomica partner, Freshworks, and IDG, that nine out of ten companies expect their service inquiry volume to either hold steady or increase in the coming year. (We’ll be digging deeper into that research separately.)
The other thing that jumps out from the analyst presentation last night was the repeated citation of Salesforce and the importance/potential of the Salesforce ecosystem as another driver for growth. The mischievous part of my mind that normally asks if Salesforce is a future buyer for ServiceMax is this morning asking if the price tag just went up?
Derek du Preez will be talking to ServiceMax CEO Neil Barua later today. Look out for his insights on Monday.