M&A Watch: Ariba and an Updated Shopping List for SAP in Procurement (Part 1)

The rumors have been heating up again these past few weeks that SAP is going to buy Ariba. These rumors come and go every few quarters, so I wouldn't put that much more stock in them this time -- at least not any more stock than in the past. But if they do prove to be true, what would Ariba provide to SAP? And what gaps would the Sunnyvale/Atlanta/Pittsburgh HQ'd vendor leave unfilled in the executive lunch room in Waldorf? The short answer is that Ariba would help SAP plug a number of gaps, leaving only a handful unfilled in the broader procurement and sourcing space. The question itself is helpful in thinking what SAP must focus on if it is to become a world class provider of sourcing and procurement tools. In no particular order, these are the gaps SAP needs to think most about in their current solution set:

  • On-Demand P2P capabilities -- Right now, SAP punts on this issue by working with BPO partners including Hubwoo, IBX, Infosys and others. This is not a horrendous strategy per se, but it's one that some customers are not as excited about when it comes to the opportunity to work with a single, prime vendor vs. multiple parties (even if the contract is on one piece of paper). Moreover, SAP's BPO partners for P2P aren't always running the most recent version of SAP products. True On-Demand P2P -- from Ariba or someone else -- would help SAP to better compete against best of breed providers on numerous levels.

  • Supplier network -- SAP should ideally have its own answer to supplier enablement for both initial supplier on-boarding and ongoing invoice / document management. Today, SAP customers can work with Hubwoo, Ariba and others from a network perspective. It makes perfect sense to see an acquisition like an Ariba in this area given the value that networks can bring today as well as their future value (e.g., working capital management, third-party financing, etc.) Or SAP could also absorb Hubwoo (or someone else) and build out a solution from an existing vendor footprint. Also see On-Demand P2P and Invoice Automation / EIPP for greater detail on this question.

  • Invoice automation / EIPP -- When it comes to invoice automation or EIPP, SAP is way behind the eight ball, having punting the ball entirely into a partner's court: Open Text. Moreover, Open Text falls behind leaders in this space like Basware from a workflow, visibility and overall network automation perspective. While Ariba is not Basware, they have solid capability in this area and would provide SAP with a viable internal solution. However, if SAP is serious about owning the global invoice automation sector they should look at someone like Basware as an acquisition (Basware is also cheaply valued from a revenue and earnings multiple perspective because it is a Nordic company, and valuations in the region tend to be more conservative).

  • Sourcing -- SAP has a decent sourcing product already and would gain only marginal capabilities from making an acquisition in this area. That is, unless they could somehow tie enhanced sourcing capabilities into a broader integrated SAP procurement suite valuation proposition. But this would take years of integration work following an acquisition announcement to pull off. SAP could, however, stand to make targeted moves in the sourcing area to build out stronger capabilities around optimization and advanced decision and negotiation support. Here, Frictionless still creates too much friction ...

  • Spend analysis -- SAP has little to gain from an outside move in spend analysis at this point, other than potentially being able to offer a solution with a more streamlined and affordable licensing and deployment model. While I'll reserve judgement until more references are available, the early days of Spend Performance Management suggest a very promising future for this product line.

Check back for Part 2 of this post, where we'll explore what other areas SAP needs to consider as it builds out its Spend Management portfolio, including contract management, supplier information management, supplier performance management, supply risk management and services procurement.

Jason Busch

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