LIVE Dispatch: Will Ariba Become a Consolidator?

Having spent nearly two years of my life doing corporate development work, I always find it interesting when a large vendor chooses to spend time growing organically and digesting its past acquisitions rather than plunging full force ahead and continuing to do deals that make sense from either a financial or strategic perspective. Indeed, Ariba's (Nasdaq: ARBA) focus on integrating FreeMarkets and past acquisitions (such as Softface) took a front seat to doing new deals in the past 12 months. But now that the core Spend Management applications market is rapidly maturing, might it make sense for Ariba to become more acquisitive? I'm not expecting Ariba to tip its cards at LIVE one way or the other, but I would be surprised if the largest pure-play Spend Management provider continues to sit still throughout the course of the year, especially given the low valuation multiple JDA gave to Manugistics a few weeks back.

If I were Ariba, what types of companies would be on my shopping list?

First, I think that owning the space between companies in the transaction -- or business decision -- will continue to take on more importance in the coming years. Other types of networked service providers that provide either transactional or strategic visibility into trading partners would certainly be strategic and fit with the co-existence strategy to sell ASN-like capabilities to ERP customers.

Second, I'd take a look at more tightly linking the sourcing and design process. Applications that provide sourcing and supply market information to help design professionals make better decisions that do not engineer unnecessary costs into products certainly could prove interesting. As an aside, the whole procurement analytics and intelligence market -- including the overbuilt transactional spend visibility segment -- is ripe for a consolidator to step in. Might Ariba be it?

Third, just as Ariba has built a focused franchise in the travel and expense arena, I could see the vendor turbo-charge its offering and revenue in other similar categories such as contingent labor and professional services sourcing. There are a number of small vendors in this area that Ariba might be able to pick up for a song, as VCs begin to realize that IPO exits for their investments are unlikely and that there are few potential strategic buyers.

Fourth, I would not put it past Ariba to purchase targeted services providers to gain a foothold in specific markets such as government or retail / CPG, just as FreeMarkets purchased Covisint to pump up their services revenue in automotive. In the past couple of years, Ariba has quietly built an internal team by hiring a number of ex Andersen Consulting, ATK and Big-Five types to build an advisory practice. But new deals like this would also help build out the sourcing and supply chain consulting practice which they've already built organically. These types of acquisitions are often cheap (1-1.2x multiples) and could bear revenue fruit quickly for the Spend Management giant.

These ideas are just a start. But if you see Ariba hiring a top-gun corporate development executive in the coming months -- as well as strong M&A integration types -- you can bet that a number of deals will be in the works. And if not, I'll bet that you'll still see some acquisition surprises if Ariba decides to put the "consolidator" hat back on.

Jason Busch

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