Pegasystems Acquires In The Chat For Customer Service Automation

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About: Pegasystems Inc. (PEGA)
by: Donovan Jones
Summary

Pegasystems has announced the acquisition of In The Chat for an undisclosed sum.

In The Chat has created chat bot technologies enhanced by machine learning.

PEGA gains a more robust digital customer service capability with the deal, the integration of which it intends to showcase at its PegaWorld conference in early June.

Quick Take

Pegasystems (PEGA) announced it has acquired In The Chat for an undisclosed amount.

In The Chat [ITC] gives organizations the means to accept customer service requests through chat bots via various digital communication channels.

PEGA gains a more capable chat bot offering as it seeks to provide its clients with machine-learning-enhanced customer service capabilities.

Target Company

Waterloo, Canada-based ITC was founded in 2010 and is a customer service digital engagement platform provider that allows customers to contact organizations through chat bots via Apple Business Chat, SMS, Messenger, Twitter, Facebook, Instagram, live chat, and email.

Management is headed by President and CEO John Huehn, who has previously served in various positions at Rogers Communications, including Vice President, Client Management.

Below is an overview video of the company's services:

Source: ITC

Company's major customers include:

  • Toronto-Dominion Bank (TD)
  • Newegg

Investors in the company include MaRS Investment Accelerator Fund. Source: Crunchbase

Market & Competition

According to a market research report by Global Market Insight, the global unified communications and collaboration market was valued at $32 billion in 2018 and is projected to grow at a CAGR of 8% between 2019 and 2025.

The main drivers for this expected growth are a proliferation of smartphones and wireless internet connectivity as well as the large investments from telecom firms into modernizing telecommunications infrastructure.

The Asia-Pacific region is projected to grow at the fastest rate due to the push for simplification and lowering the cost of communication infrastructure.

According to another market research report by Research and Markets, the global digital customer experience and service automation market is projected to reach $179 billion by 2023.

This represents a strong CAGR of slightly less than 29% between 2018 and 2023.

A large number of customer inquiries and their complexity can be hard to respond to in a timely manner and digital innovations, such as chat bots, offer superior means of communication, and even automation.

The research concludes that real-time and efficient customer service plays a key role in the success of any business.

Major factors driving market growth are the growing number of digital platforms and the need for better customer experience with the goal of maintaining a competitive edge in the market.

Major competitive vendors that provide digital customer experience or service automation include:

Source: Sentieo

Acquisition Terms and Financial

PEGA didn't disclose the acquisition price or terms and didn't file a Form 8-K or provide a change in financial guidance, so the acquisition was likely for a financially non-material amount.

A review of the firm's most recent 10-Q filing indicates that as of March 31, 2019, Pegasystems had $202.2 million in cash and marketable securities and $368.1 million in total liabilities.

Free cash flow for the three months ended March 31, 2019, was $22.7 million.

In the past 12 months, PEGA's stock price has risen 16.06% vs. Appian's rise of 13.94%, as the chart below indicates:

Source: Sentieo

Earnings surprises have been negative seven of the last twelve quarters, as the chart shows below:

Source: Seeking Alpha

Analyst sentiment in recent earnings calls has turned upward to slightly more positive than negative, per a linguistic analysis:

Source: Sentieo

Commentary

PEGA has acquired In The Chat to bolster its customer service and digital process automation capabilities.

As PEGA stated in the deal announcement:

ITC's platform, which enables communications via virtually any digital channel, will be integrated with Pega's AI-powered customer engagement solutions, providing clients a seamless, future-proof way to connect with customers.

By integrating ITC's machine learning chat response systems, PEGA helps clients retain their customers via instantaneous chat systems across a range of digital touch points.

Reducing customer churn and learning customer pain points with products is a high priority for technology-enabled businesses, so the deal for ITC makes sense, even though it probably won't move PEGA's stock in the near term.

PEGA intends to quickly integrate ITC's system and plans to showcase the newly combined capabilities at its company conference in early June.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.