Goldman Bullish on an Ariba Acquisition — But Don’t Discount Other Sector Candidates (Part 1)

Last week, Goldman Sachs came out with a list of companies it sees as possible acquisition candidates. The list was part of a broader report -- covered extensively in the business media -- suggesting that the time is absolutely right for M&A to heat back up again. This, of course, makes perfect sense (and no doubt, analyzing the return of M&A will get all of our minds off of Goldman "Muppetgate"). The WSJ covered the story and the research note, summarizing the environment when it notes that despite low levels of recent M&A activity, "the large piles of cash on corporate balance sheets, improving consumer confidence, low interest rates and slowing growth have created a ripe environment for a surge in deal making," the firm said. Moreover, "corporate cash balances have grown 55% since 2007, and sales growth is decelerating on a year-over-year basis. Plus, debt is cheap and unlikely to get any cheaper."

This brings us to acquisition candidates, which have a "15% or better probability" of being acquired. Here, Goldman lists Ariba, among others. An acquisition of Ariba is something we've suggested for some time, but at the current levels of the stock, would have to require a suitor not only with deep pockets, but a tolerance for paying at the top of the market. Such a deal could make sense under the right circumstances. There are certainly a number of "pro" elements that would favor a deal, even at the high valuation multiples that would be required. To wit, Ariba brings:

  • A recent history involving a truly successful transformation to a SaaS/cloud business model while still managing to keep (most) legacy CD customers happy -- or at least somewhat happy
  • The ability to drive revenue and a proven transactional network business model (despite our pricing quibbles along with a number of somewhat expected customer defections to SAP SRM, Oracle iProcurement, etc.)
  • Broad end-to-end coverage in the historic bounds of the source-to-pay market (e.g., including spend analysis, contract management, P2P, sourcing, etc.)
  • More than solid capability in the core areas in which it competes strongly today (e.g., P2P); in some areas, its solutions still represent the benchmark target from a functional footprint perspective
  • Improving channel/consulting partnerships

As with all deals, I could find various critiques to argue against an Ariba acquisition. But we won't go there in this rant (frequent Spend Matters readers know where we believe Ariba is strong and where it can improve). Rather, it's worth listing out other high-value acquisition targets that those shopping in the Ariba price range might also be interested in (as well as those with slightly less rich pockets). I'll list these potential candidates by procurement technology sector (but without double counting -- a number of candidates we could have placed in different areas). A few caveats: the order I've opted to list vendors in is roughly by trailing revenue in declining order but please don't take placement to be exact -- it's truly a guestimate and the further down the list one goes, the less likely it is to be precise. Moreover, this list is certainly not complete by category -- please consider it a sampling of potential targets.

P2P (including eProcurement, e-invoicing and indirect supplier enablement): Basware, GEP, OB10, Hubwoo, Proactis, Coupa, Ivalua, B-Pack, Verian, Puridiom, Transcepta, TradeShift

Sourcing (including advanced sourcing/optimization): BravoSolution, Zycus, Iasta, CombineNet, Trade Extensions

Supplier Management: Achilles, Lavante, Aravo, Hiperos, HICX

Spend Analysis: Spend Radar, BIQ, Rosslyn

Contract Management: Upside, Revitas (formerly known as iMany), Selectica, Symfact

Direct Materials Sourcing, Supply Chain, Commodity Management and/or Procurement Enablement (a grab bag, we know, but direct materials is worth addressing even if we're lumping in providers that are quite different from each other): JDA Software, GXS, Triple Point Technology, e2Open, Kinaxis, Co-Exprise, etc.

Of course, as Goldman suggests by its inclusion in the report, Ariba would be one of the largest prizes in the sector. But we would encourage those creating shopping lists to truly "check it twice," so to speak, and ensure they've touched all bases given their specific priorities. I'm personally shocked by the amount of IP in some of the organizations and how vendors like JDA could be acquired for <2% of what i2, Manugistics, Aspect were once valued at!

In next week's rant, we'll highlight one or two providers from each area in more detail and describe why, just as Goldman has positioned Ariba, they might be solid acquisition candidates as well.

- Jason Busch

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