SAP finally closed its acquisition of services procurement provider (or VMS provider if you like) Fieldglass from Madison Dearborn Partners, according to a quietly released blog entry on the SAP website by Mike Etting, the Global Head of Cloud & On Premise HR. Since the actual financial terms of the deal won’t be known until SAP discloses the final terms when it files Q214 financial results, the only estimate we’ve seen for now is a Dow Jones piece that cites a net internal rate of return of 56% and that Madison Dearborn “received 5.1 times its money” according to a person with knowledge of the transaction.
Since Fieldglass itself indicated that the original buyout deal was worth over $220 million, that would put the valuation at roughly $1.1 billion. This is the rough valuation that we had expected and published in SAP and Fieldglass: Questions Raised by the $1+ Billion Acquisition, albeit somewhat lower than we thought it could have gone given the size of the market, Fieldglass’s strength as the undisputed number one provider by share in the market, MDCP’s hard nosed eye for a deal, and the exuberance of the market for anything SaaS (which has died down a bit recently).
So, now that this vision for acquiring Fieldglass in SAP’s stated broader context of “total workforce management” is complete, the question turns to its ability to execute. From a big “check box” standpoint, we now have Fieldglass providing a transition from SuccessFactors handling full-time and part-time workforce requirements to Ariba Services Procurement doing some basic contingent labor and SOW-based procurement and invoicing (note much of this can be done in Fieldglass as well). And it’s all in the cloud. And it should integrate to the Ariba Network. And it should eventually work in concert with the older SAP applications (e.g., service entry sheets), whether on-premise or hosted. And it’ll all be ported to HANA. For right now, this integrated scenario only runs on the “PowerPoint Platform,” but it certainly is a compelling vision.
Making the vision a reality though will take some work, and as SAP buys its way into the cloud, our essay Don’t Fall for the Myth of Integrated ERP Procurement seems to be ringing true. There are obviously many "moving parts" here from an integration standpoint, and SAP’s organizational dynamics right now are, well, dynamic. With a recent dismantling of senior leadership from a separate cloud business, recently confirmed layoffs, rumored further layoffs in June, and a power struggle between a US culture under a now-single US-based CEO and a German-based organization seeking to re-assert its software engineering prowess, things are somewhat in flux. We will be writing more about some of these dynamics and the implications for practitioners and the rest of the market ecosystem in future Spend Matters pieces.
For now though, we should say that SAP picked a real jewel with Fieldglass, and we hope that they’ll leave the Fieldglass team relatively untouched, and allow them to keep doing what they’ve been doing. SAP should be proud of finalizing this acquisition, so it’s a little strange that they were so quiet in “announcing” the closing of the deal. It was so quiet that we had even written an article wondering what was going on! Anyway, we’ll dig more into this and report back, but for now, the close of the deal should be good news for Fieldglass customers, and bad news for Fieldglass competitors, but only if Fieldglass continues executing and SAP lets the firm deliver the returns commensurate with the billion dollar investment.