One of our team members was at a conference this week when at the lunch table, an SAP employee was introduced to us and jokingly asked “Oh good. Maybe we can find out from you guys why we bought Concur!"
We won't re-hash our pieces that we've already written (see related links), but it's a fair question from an employee who's wondering if it’s $8 billion well spent.
In a related topic, we saw a financial analyst analysis on the acquisition recently, and he made a good point regarding cash flows and recouping the investment.
I'll paraphrase: If SAP has a WACC (Weighted Average Cost of Capital) of 15%, then from a simple DCF standpoint, SAP needs to generate $1.2B annually in perpetuity (or more with a shorter payback period) to recoup the investment.
The article pegs Concur FCF (free cash flow) at $30 million, but even if it's $80M (which is roughly its cash flow from operations form the last few years), then, SAP needs to find a 15X multiplier to make its money back at the 15% discount rate.
There are likely some synergies, of course, but the question is whether the transaction will generate 15X the synergy at a provider who was already the biggest pygmy in the relatively small T&E forest? Maybe. Or Maybe not.
Yet two things are for sure. First, the deal is not yet done. Second, the reasons for it are not as cut and dry as the Ariba and Fieldglass acquisitions that are slam dunks from a strategy perspective. But perhaps most important, given the financial engineering work that's likely been happening behind the scenes, it might turn out the $253M breakup fee is not as outlandish as it might seem on first glance.
Then SAP employees won't have to ask the logical question: Why did we do this in the first place?
What do you think? If you're SAP, do you leave Concur at the altar with a quarter of a billion? You need to decide quickly!