Arcadis Acquires EHS-IT Services Firm E2 Manage Tech, Market Shift Continues [MondayMusings]

The #MondayMusings Industrial Transformation blog series provides insight and analysis for executives from the previous week’s briefings, events, and publications @LNSResearch.

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The consolidation of the EHS software and IT market continues to roll along with the announcement that global engineering and consulting powerhouse Arcadis acquired E2 Manage Tech, a specialized EHS-IT services provider. To date, most of LNS’ coverage of the this market has been focused on software vendors. Service providers are an essential part of the ecosystem, and this transaction illustrates some important trends that impact industrial end-users of EHS management software.

Arcadis bills itself as “the leading global Design & Consultancy firm for natural and built assets.” The company operates at a massive scale, with 27,000 people working in over 70 countries, and revenue of 3.3 billion Euros. Within this broad scope of services, Arcadis has been visibly active in the EHS-IT services market in recent years, with a dedicated practice. E2 Manage Tech is a prominent player in the EHS information services market, with over 50 employees. Although small by IT services firm standards, its long established niche focus makes it a heavyweight in the EHS-IT world.

The deal is in line with Arcadis’ stated strategy to “add strategically aligned companies to strengthen our existing leadership positions and build differentiated capabilities to better serve our clients.” Of note, E2 Manage Tech’s CEO Vijay Gudivaka will lead Arcadis’s global EHS information management business. His deep experience in the space should help Arcadis realize its objectives.

Aside from the in-house professional services groups within EHS software vendors, there are several flavors of independent enterprise-level EHS service providers. Boutique firms such as Huco Consulting and FrostByte focus on EHS-IT services exclusively. Large IT services firms and systems integrators such as Wipro, TCS, Accenture, EY, and IBM have relatively small EHS practices often aligned with the firm’s overall manufacturing practice. Another category is large EHS and sustainability consulting firms with a dedicated information solutions business, such as ERM, CH2M, TetraTech, and AECOM. The latter is the space that Arcadis plays in.

Scale and Digital Differentiation

With the acquisition of E2 Manage Tech, Arcadis has propelled itself towards the forefront of EHS-IT services providers, both regarding sheer resources as well as domain expertise. The combination makes sense to us. There’s a lot of potential synergy by joining the deep EHS-IT acumen and resources of E2 Manage Tech with the global reach and subject matter expertise of Arcadis. Arcadis can take advantage of its existing client relationships to extend and scale the EHS-IT services business across multiple industries and geographies, building on its solid resource and experience base.

Given the large scale and breadth of the Arcadis business, the incremental revenue from the acquisition is small. However, this move helps Arcadis differentiate itself with high value, specialized services in the often-commoditized world of consulting engineering, and environmental services. It also serves as a springboard for Arcadis to further support its clients in the realm of Digital Transformation and data-driven performance improvement.

An Extension of the EHS Software Arms Race

This transaction reflects trends in the larger EHS software and technology market. Recent years have seen a spate of acquisitions and private equity investments in this space, in what we’ve dubbed the “EHS Software Arms Race.” It’s only natural that the same concept of investment and scale be applied in the services space. With many EHS software vendors seeing double-digit growth rates, there is a commensurate rise in the demand for consulting and implementation services.

Many EHS software vendors are at an inflection point in which they are moving to a partnership with service providers to go beyond the limits of their in-house consultants to scale the business. With a vendor-neutral services offering, Arcadis should be poised to leverage E2 Manage Tech considerable resources to capitalize on the opportunity. At the same time, even those firms that are “vendor agnostic” tend to specialize in a subset of EHS software firms. To date, Arcadis and E2 Manage Tech have aligned with software vendors such as SAP, Enablon, Sphera, and Intelex, among others. In a rapidly consolidating and fluid market, decisions on who to partner with will impact success. End user companies looking to engage with an EHS-IT services provider should, of course, perform due diligence on the nature of those partnerships, as it could influence the range of options considered.