Xactly buys rival Centive

Xactly last night announced it has completed the acquisition of Centive, its closest pureplay SaaS rival in the sales performance management sector. The all-stock deal almost doubles San Jose-based Xactly's revenue and customer base, and had first been discussed by the two CEOs as much as a year and a half ago, Xactly's CEO Chris Cabrera told me this morning. Having eliminated the distraction of competing with each other, the combined company will now be able to focus on winning market share from conventional and hybrid-SaaS competitors such as Callidus Software. "We think that by taking the only two 100-percent SaaS companies in the game and making them one, we make it easier for our customers to choose," said Cabrera.

When asked whether current economic conditions had played a part in crystallizing the acquisition, Cabrera was at pains to assert that both companies had been doing well independently. "Both companies had a very good Q4 — our space is doing very well," he said. "By combining these two companies together we come so much more of a strong competitor." New Centive customers in 2008 included over 1000 seats at a division of Motorola, and several hundred seats each at Flowserve, Honeywell, Intergraph, Parametric and WebSense, while Xactly recorded notable wins at 3Com, NTT America, Omniture, PayPal, Rackspace, TIBCO and others. The combined company now has "well over 200 customers" said Cabrera.

"Size really matters in the SaaS world," he added, noting that the acquisition will bring operational savings as back-office functions are merged, helping reduce costs as a proportion of revenue — although the company will retain a significant presence in New England, where Centive has its headquarters. "Doubling in size helps us get there much more quickly," said Cabrera. "This really was a no-brainer from a financial point of view."

Convergence of the two product sets won't begin until the company has had time to evaluate how best to bring them together. Although there's inevitably a great deal of overlap, there are areas of functionality that are unique to each and so it won't be a case of completely eliminating one product, as has been seen in some other SaaS acquisitions recently. Xactly will also be seeking to preserve and build on Centive's OEM partnership with ADP, which has brought in contracts ranging from 70 to 650 seats since it was announced in late 2007.

The combined company has significant venture capital backing. According to peHUB, Xactly has raised $60 million since 2005, while Centive has raised over $96 million in the past ten years, although MassHighTech notes that $80 million of that sum predates a recapitalization that took place in 2005, prior to Centive selling off its on-premise software business to private equity investors.