Earlier this week, SAP announced that it had closed its acquisition of Ariba, following the deal's clearance by the US Department of Justice (DOJ). We covered this announcement on Spend Matters and Spend Matters PRO on Monday. Of course what really made the deal real to us beyond the press release was looking at Ariba's listing on Google finance (or lack of it) on Wednesday. Written in virtual stone forever is the final market capitalization of $4.58B, a valuation representing over eight times forward revenue.
Source: Google Finance, ARBA stock quote look-up
I must admit, even though I was familiar with the numbers, I had to stare at the screen for a good minute one final time and applaud the job the Ariba team did to turn around the organization and sell-out for that valuation. It was an absolutely optimal exit for shareholder value for so many reasons that we've covered already. But the more important question for this audience is not what the closing of the transaction means for investors, but what it means for customers.
On Wednesday, two members of the Spend Matters team caught up with SAP's procurement team to learn more about the transaction and the immediate post-merger integration planning, which is still very much in its early days. Broadly speaking, SAP is positioning the transaction as a combination of the world's largest enterprise applications vendor with the largest business network and spend management provider. But underneath this high-level positioning, SAP is keen to prioritize the network aspect of Ariba's business as the most valuable and unique aspect of the deal.
Of course the irony here is that of the two, it's SAP who has the right assets to take the Ariba network business model (and capability) to the next level. Moreover, SAP has proven its ability to move more quickly than Ariba in recent years as well. As we observed in a Spend Matters PRO analysis earlier this week:
Those competitors that still believe SAP is slow to adopt to the current technology environment with new product releases and innovations would be shocked to see what the formerly slow-moving ERP giant has been able to build in the past 24 months. If SAP and Ariba together can move half as fast and effectively as SAP has in the specific areas of supplier risk management on a network basis, spend analysis, numerous mobile/iOS focused prototypes/products and a forthcoming SRM re-skin, we know the competition and broader market will be in for a big surprise.
On our call with SAP on Wednesday, the procurement leadership team was keen to point out their vision for fully exploiting the Ariba network asset by offering a cursory look into how a networked approach to linking buyers and suppliers could go beyond the type of transactional connectivity that Ariba enables today. For example, a next generation version of the Ariba network could drive "inventory visibility, product design/engineering, vendor managed inventory (VMI) programs," and related areas, the SAP team told Spend Matters.
We would not discount SAP's ability to make good on this promise given what they've been able to accomplish with Supplier InfoNet (see previous coverage here, here, here, here, and here) thus far. Looking ahead, however, SAP told Spend Matters that the Ariba team will be leading SAP's network business, tapping SAP's internal direct materials and manufacturing expertise for product extensions, such as the examples provided above. Most important, in the near-term, SAP's strategy is to "drive network traffic and enable as many nodes as possible." In other words, SAP plans to continue Ariba's strategy of enabling as many suppliers as possible, creating more and more spokes to tie into the network hub.
Not only will SAP provide increased distribution for the Ariba network, but eventually new enabling technology as well. This will not only connect suppliers and heterogeneous customer systems (e.g., eProcurement, ERP/MRP, asset management, inventory management, etc.) but also provide distributed intelligence on top of the network for individual participants. Of course the ultimate value of this network business (for customers and shareholders alike) will come not only from connecting nodes, but making sure there are millions of active participants that do more than just push invoices, POs and ASNs back and forth. Transitioning from becoming what has been essentially a modern XML-based next generation VAN today as a core business model to a true collaborative, intelligent, sensing and predictive network tomorrow will be totally game changing when it happens.
Stay tuned as our reporting continues in Part 2 of this series.
Spend Matters readers may be interested to understand how our coverage of SAP/Ariba will differ on our public site (what you're reading now) versus our subscription site. This site will primarily featuring reporting going forward (i.e., what SAP has shared with Spend Matters). If you want detailed analysis, recommendations and opinion about the SAP/Ariba merger from a variety of perspectives -- practitioner, channels/consultants, competitive, etc. -- consider subscribing to Spend Matters PRO.