Over the weekend, the US department of Justice (DOJ) cleared SAP's announced acquisition of Ariba, a move that represents the last major hurdle that SAP had to overcome to close the deal. This follows news from earlier last week that the U.K. Office of Fair Trading also approved SAP's announced acquisition of Ariba. The DOJ clearance was something we predicted on Spend Matters PRO (and Spend Matters), but the announcement was by no means certain. In fact, as we referenced previously this summer, once proposed acquisitions receive a second request, nothing is certain:
If we look at the numbers alone, the proposed acquisition is an outlier, as most acquisitions do not receive a second request for information. In this regard, in both 2010 and 2011, the percentage of transactions resulting in a second request for information stayed the same at 4.1%. Yet if you dig into these numbers on a more granular level, they tell a bit of a different story (i.e., true alarm bells should not go off that the DOJ will in fact challenge the deal). Specifically, the DOJ issued a second request in 34 cases while the FTC issued a second request in 24 (out of a total of 1,414). These numbers represent 2.4% and 1.7% of the total "adjusted transactions in which a second request could have been issued" according to government data."
What is more interesting, however, is what types of transactions typically receive a second request for information. Here, the data is overwhelming weighted toward transactions over $1B billion in proposed value (the level of the proposed SAP/Ariba deal). At this level, the second requests issued of a percentage of the total number of transactions was 1.2% for the DOJ (or 1.7% in total, including the FTC). Yet for the transaction range within this group, the number was 10.7% (again, for the DOJ; adding in the FTC brings the percentage to 15.1%).
Overall, the total number of second request investigations for the DOJ that fall into this bracket represent 29.3% of all requests (this percentage comes to 41.4% adding in the FTC numbers). Within this $1B+ range, 159 deals could have qualified for a second request for information. In total, 24 actually were (factoring in both DOJ and FTC requests). Ultimately at all transaction levels, during fiscal year 2011, the DOJ "Antitrust Division challenged twenty merger transactions that it concluded might have substantially lessened competition if allowed to proceed as proposed." The FTC challenged 17 during the same time frame. Now go back to the actual number of second requests for information: 58 in total.
It is not a perfect map between the number of cases brought by the DOJ or FTC in 2011 because the original requests for information (or second requests) could have occurred in fiscal year 2010. Yet if we take the number of cases that the FTC and DOJ ultimately challenged in 2011 and compare that to second requests for information (which may precede a challenge), that the numbers suggest that the ratio of second requests to challenges is roughly 2/1 (slightly above).
Based on our analysis of product and network marketshare and competitive positioning of overlapping products between SAP and Ariba, we never doubted the deal should clear. Yet the fact the DOJ had to consume likely close to eight figures of private sector dollars on lawyers and consultants as part of a second request efforts represents a giant drain on shareholder value and the private sector. But despite the closing delay and cost to shareholders, the deal is now all but done. According to a joint press release issued by both SAP and Ariba, "SAP said that all of the required regulatory approvals for the transaction have now been received ... [and] SAP and Ariba anticipate completing the acquisition in the first week of October 2012."
We'll be covering our analysis of what's next for Ariba and SAP in detail on Spend Matters PRO -- including expected planning around customer communication, product planning, product integration and new product development (e.g., a mashup of SAP's Supplier InfoNet with Ariba network) -- in the coming weeks after we talk to SAP and Ariba in more detail. But at this stage, we've made a number of observations and initial recommendations in today's Spend Matters PRO post (subscription required), including product-level recommendations for:
- Current Ariba customers
- Current SAP and Ariba customers
- Current SAP customers
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