Exploring the DOJ Review of Ariba and SAP — Check Back Next Week for Our Complete Analysis

We've received over a dozen inbounds requests for information (mostly from the financial services and legal communities) for our analysis of the DOJ anti-trust review of the SAP/Ariba deal. We covered this briefly on Spend Matters PRO already in a series of posts considering the transaction, even before the DOJ opted to take a closer look at things. For those who follow this sort of thing closely, the DOJ issued a second request, something it does in less than 5% of cases, for additional information regarding the transaction. These requests are often quite comprehensive and could slow down a potential acquisition timeline (in cases where the merger partners did not plan for them). And in select cases, this discovery process could even lead to a Federal case against the proposed merger based on anti-competitive practices.

Next week on Spend Matters and Spend Matters PRO we'll feature our detailed analysis of materials the DOJ is likely to look at (including our take on relative market share of SAP and Ariba products, pricing power, and the like -- the stuff of anti-trust analysis). At this point, we would not suggest (based on the metrics we're familiar with in terms of market share and pricing power) that there's any reason for serious alarm about whether the Feds will ultimately challenge the deal (we could be wrong, of course, but that's our gut). Moreover, in looking at historic financials, the larger a proposed deal is, the more likely it is to draw a second request for information (and this transaction falls in the upper quartile by M&A size standards).

Still, there are some yellow flags that need to be examined, especially based around network pricing power and the ability of Ariba and SAP to potentially mandate the use of their applications and network to users. We'll investigate these related matters next week. Spend Matters PRO subscribers will have full access to our analysis. And we'll feature the Cliff Notes version of some of the areas on the public site. In the meantime, we suggest that everyone that is overly obsessed with the DOJ review -- we can tell you, it's not procurement practitioners!! -- to not get overly alarmed at this stage. But we can also tell you that we'll do our best on Spend Matters PRO to get to the bottom of what the review is most likely to closely consider, at least if we were scrutinizing it ourselves based on the standard DOJ and FTC horizontal M&A review processes and knowing the true guts of both Ariba and SAP procurement and network products and pricing models and pricing power.

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- Jason Busch

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