Users of construction management software Procore (NYSE: PCOR) got some interesting news in late September when Procore signed an agreement to acquire Levelset, a company whose primary function is to help contractors collect and send payments. Although Procore and Levelset have been partnered since 2018, this new phase of their relationship spells more data integration for Procore users, as well as endless potential for new financial tools going forward.
"Construction work is hard enough -- getting paid shouldn't be," Tooey Courtemanche, Procore founder and CEO, said in an interview with BusinessWire. "Levelset helps the construction industry get paid faster, and their offering will be a perfect addition to the Procore platform. This acquisition will also give Procore access to industry data, including payments and compliance activity, allowing us to deliver valuable risk intelligence to our customers and to develop innovative financial products."
In late October, Procore also acquired LaborChart, a tool that helps contractors better schedule and organize and communicate with their workforces. Not only does it allow contractors to schedule labor at a single job site, but it also can help forecast labor needs, thus streamlining teams where shortages are already too common.
Construction project management before Procore
It may not seem like a big deal that Procore is expanding its business to include payment management tools and labor management. For most other industries, this is news that's about a decade old. But the truth is that construction has lagged behind the technology wave for some time.
I've been part of many building and development projects, and the sheer amount of paperwork and unnecessary physical invoicing once required real skills to keep up with every little detail.
From the lumber and nails that go into the frame to the payments that go to the plumber, the lot graders, and the cement trucks -- the absolute complexity of a construction project is incredible. It's really a miracle anyone could accomplish this kind of bookkeeping and scheduling by hand. But that's how it was done: Ledgers, faxes, and mailed handwritten receipts were common until very recently.
As wireless internet access has become more widely available pretty much everywhere, more construction professionals have found ways to integrate tablets and smartphones into their daily processes. Working in the cloud is ideal, but it wasn't always possible before the anytime, anyplace internet access we often take for granted in fields where work occurs primarily indoors at a desk.
Procore changed everything for people in construction, and integrating Levelset's tools was just icing on the cake. It allowed contractors to be paid faster and included integrations to juggle things like lien rights and lien waivers, as well as risk intelligence that allowed subcontractors to review the payment histories of contractors looking to hire them. And this latest team-up with LaborChart means an entire construction site can be run from one application.
The Millionacres bottom line
Details are less clear on the deal with LaborChart, but there's a lot known about the Levelset deal as of October 26, 2021. Ultimately, buying LaborChart will give Procore as much of an end-to-end tool for construction projects as has ever existed. The motivation for buying Levelset is a little less clear, though.Procore is giving $500 million for Levelset -- $425 million in cash and $75 million in stock -- rather than continuing the long-term partnership they've had in place. Essentially, Procore put a ring on it… but why? A couple of different things are probably going on here, though this is strictly speculation.
First, it's likely cheaper to buy than to rent. That's a pretty common theme in many of these sorts of tech partnerships. Why continue to pay fees to a company you plan to use indefinitely? Just buy it. That way, you have more ways to control costs and can make changes you feel would make more sense with your own business model. Easy peasy.
Secondly, I expect that the data that Levelset uses to generate information like those contractor payment histories goes a lot deeper than what Procore has access to under the current arrangement. Data is as good as gold these days, maybe better.
So, having a better understanding of the data that Levelset has collected could help Procore develop new tools -- or even target better and more effective marketing campaigns. Or, you know, maybe it's worth being packaged and sold or leased. Data has a lot of uses.
Procore's purchase of Levelset was kind of inevitable considering how small this particular tech sector happens to be. To keep a strong hold on the market, Procore can't have Levelset partnering with anyone else, and going all-in is a sure-fire way to ensure it keeps its long-term partner totally on the same page.