Automation Anywhere: an incredible play in RPA
Executive Summary: Human error in data entry can be extremely costly- take Citibank’s accidental wiring of $900M to creditors. This mistake was likely due to human error, perhaps a worker going through the motions and erroneously filling out one of their forms. Robotic process automation (RPA) software solves this problem, reducing human error, allowing companies to efficiently construct workforces, and freeing employees for higher value tasks. Automation Anywhere is the first cloud-native RPA PaaS provider, operating in a market with a ~50B worldwide TAM and would be a great investment for growth investors with an expected IRR of 32% in 5 years.
Business Overview: Automation Anywhere is a cloud-native RPA suite of tools targeted at both SMB and enterprise customers. Compared to other players like UIPath, the entire suite of tools are available on the cloud, allowing for faster deployment, which customers prioritize. Furthermore, the company utilizes a land and expand PaaS model, with prices starting at $750/month and expansion opportunities based on additional users, bots, and services. Management team consists of industry veterans led by Mihir Shukla, previously Director of Engineering at E2Open.
Financials: According to publicly available information, I expect the company to grow quickly from its revenue base of ~$400M¹ today, due to its unique competitive positioning as the cloud-first RPA provider, effectively targeting both SMBs and enterprises.
Market: The 2020 RPA market was ~1.8B² and is expected to grow at a ~38%² ‘20–25 CAGR, with trends further accelerated by COVID-19 spurring digital transformations to make up for work loss during the crisis. Additionally, leading players are horizontal platforms that can quickly scale up this market size by expanding into new industries. Lastly, the worldwide TAM is estimated to be ~$50B³, illustrating the potential for growth into the near future as use-cases and popularity of RPA expands.
Competition: The RPA market is relatively consolidated, with a majority of revenue made up by the 3 market leaders (UIPath, Blue Prism, Automation Anywhere). The RPA market is likely to evolve into a natural oligopoly, as scaled players benefit from network effects as many host marketplaces with 3rd party content. Additionally, as RPA players get larger, they suffer less from consumer concentration of revenue and thus are less threatened by consumer power. However, in the future, it is likely that verticalized/specialized RPA solutions will be able to carve out niches for themselves.
Returns: At a 25x entry and 20x exit NTM sales multiple⁴ , I expect a 32% IRR with a MoM of 4.0x. With an investment of ~70M for a ~0.4% stake, Automation Anywhere can continue to spend on S&M to scale quickly. It may be worth engaging previous investors such as SoftBank for additional capital for this Series C round, given Automation Anywhere’s expected entry post-money valuation of ~$17B.
Note: The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. These views do not represent the views of my employer and are my personal opinion.
¹Projected as a function of employee growth over time
²Calculated using a weighted average based on reports from Gartner, P&S Market Research, Wikibon, and Grandview Research
³According to ETR, Software Pundit, Zinnov, and personal independent analysis
⁴Based on high-growth public SaaS comparables and Blue Prism’s filings, a public RPA company
