SAP to Acquire Ariba at a 20% premium ($45/Share)

- May 22, 2012 12:05 PM
Categories: Breaking News, Jason Busch, Optimization, M&A |

Moments ago, SAP announced it would acquire Ariba. According to the news, “SAP AG and Ariba announced that SAP’s subsidiary, SAP America, Inc., has entered into an agreement to acquire Ariba for $45.00 per share, representing an enterprise value of approximately $4.3B … The Ariba board has unanimously approved the transaction.” SAP is funding the transaction from “free cash and a €2.4B term loan facility.” Further, “The transaction is expected to close in Q3 of calendar year 2012, subject to Ariba stockholder approval, clearances by relevant regulatory authorities and other customary closing conditions … The transaction is expected to be accretive to SAP’s non-IFRS EPS in 2013.”

With the acquisition announcement, it’s clear that SAP is playing for cloud-keeps in the business applications space, even if Ariba represents a source-to-pay provider that ported its CD business to a SaaS model. Coming on the heels and post-merger integration of the SuccessFactors transaction and the internal SAP cloud team realignment, the Ariba news will no doubt be a surprise to many in the field. While we will analyze the solution and product synergies of the announcement throughout the next few days, there is significant overlap in the solution base between the two providers, and still, a number of holes that SAP will have left to fill (e.g., advanced sourcing/optimization).

Most important of all, the deal should provide significant ammunition to SAP as it claims market-share dominance of the sector, at least in the near-term. But it should also spark significant innovation among competing providers as the investment community rewards new innovations with backing to compete in a consolidating market. With IBM’s acquisition of Emptoris combined with this announcement, there are fewer and fewer providers left in the source-to-pay market with significant revenue scale.

Stay tuned as our analysis of the news continues throughout the day. Among other areas, we are curious to better understand how Ariba’s supplier network revenue and positioning will fit SAP’s license-focused business model (and if SAP will maintain the supplier-funded P2P model that Ariba has advocated in the market, which in large part has enabled them to price aggressively in recent deals).

- Jason Busch

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Comments

  • Dan Roehrs:

    uh…..wow….what a move (sarcastically). And people are curious as to why upstarts like BuyerQuest and Coupa are having so much success?! Duh….maybe it’s because these large companies with diluted solutions keep getting larger and the solutions that matter to specific lines of business most get less and less R&D attention. When PeopleSoft was acquired by Oracle for example, their SRM R&D went from nearly 100 to a fraction of that AND they had more "modules" to now work on. Well for the market and client’s sake, I hope this doesn’t mean so much departmental/duplication rationalization that it further dilutes the usefulness of their offerings. But my guess is that after selling some of the heavy weight service offering to Accenture and seeing what SAP has done to the likes of the old Commerce One’s IP, I’m not holding my breath!

    This may also spell a very bad thing for Coupa and a very good thing for BuyerQuest. Considering BuyerQuest has an “augmentation” strategy and Coupa has a “rip and replace strategy, SAP may be more inclined to add even deeper pockets to the latest Ariba legal fight against Coupa and decide to better partner with the likes of BuyerQuest. And if history has anything to teach us about going toe-to-toe with Ariba, it’s that “this junkyard dog” is not one to keep shoving the stick at when it’s already angry. Just ask Emptoris, now an IBM company (coincidence?).

    In my opinion, there’s still a market and a need for the likes of Coupa and BuyerQuest. Simplicity and mass adoption will always trump complexity and over touted and never used procurement centric capabilities.

  • The Godfather:

    While your points on post merger integrations are well taken, it’s not an unusual situation for any firm. It’s a matter of managerial expertise that some are good at and other are not. Keep in mind that SAP’s recent turn toward an on demand architecture is clearly an indication of a move away from their arguably historic penchant for "overly complex" with "never used procurement centric capabilities" to a more rapid and flexible approach. Thought I’d never use those words in regards to SAP, but only will tell.

  • The unnamed source:

    Moving towards an on-demand architecture is not the same as a move away from "overly complex." Ariba’s solutions are by nature overly complex, especially their downstream solutions. In that respect, Ariba should be able to find a nice home at SAP.

  • Dan Roehrs:

    While I would agree that SAP’s move to on demand is a sign of their recognition of a need to change. It’s a difference between leading the market or following. No doubt that this massive machine pre and post Ariba will continue to bang out impressive solutions, but agility and innovation are hardly words I would use to describe the solution set. Ariba will bring some of that, for sure. But even they have been "taught" a bit of their own by becoming a bit more ERP like and watching deal after deal going to niche/point solutions. Will it be impressive? Sure. But for those that are looking for the iPhone of SRM, probably won’t be here. It more like the Nokia, Motorla and Samsung of SRM; where following innovation in a massive, conservative and carefully controlled manner will be the course taken.

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