SAP and Ariba: Waiting for in(Justice)? What the DOJ May Be Seeing

The DOJ's "second request" review of the proposed SAP and Ariba deal is causing the transaction to drag on at a time when both parties (not to mention many competitors) would appreciate closure rather than uncertainty. We spent quite a bit of time analyzing what we believe the DOJ would look at during their review in a detailed series on Spend Matters PRO (a couple of months back. Members can read these stories directly below:

Anti-Network Trust or Anti-Network Bust? The DOJ Review of SAP's Proposed Acquisition of Ariba (Part 1)

Anti-Network Trust or Anti-Network Bust? The DOJ Review of SAP's Proposed Acquisition of Ariba (Part 2)

Anti-Network Trust or Anti-Network Bust? Exploring the DOJ Review of SAP's Proposed Acquisition of Ariba (Part 3)

In this series, we examine SAP/Ariba's overlapping product lines in detail as well as the types of analyses the DOJ has likely spent thousands of hours already poring through. However, our snap judgment suggests that "the only flags we would raise for this potential transaction based on the standards the DOJ and FTC analyze M&A activity based on anti-trust concerns is how Ariba and SAP could potentially lock customers into their own network offering and require (read: mandate) pricing on suppliers because of the lock-in with the procurement and AP community on the buy-side." Still, for a variety of reasons, we believe that upon a cursory examination of the information likely provided by both companies as well as third-party analyst market sizing and share data, that "the proposed transaction is unlikely to garner a close degree of scrutiny if the DOJ really does their homework."

Consider two points we make in this area. First, "Neither SAP nor Ariba are dominant leaders (we would not describe them as functional leaders, either) in the area of e-sourcing. Their combined respective market share in these areas would be significant, but the share of overall spend (especially for more advanced e-sourcing solutions) does not suggest a position anywhere close to dominance or one that would enable a combined organization to gain pricing power. Second, "Neither have significant or dominant traction compared with existing supplier directories such as ThomasNet, Alibaba and others as well as the rest of the SAP/Ariba procurement portfolio, for supplier search as part a supplier network environment."

In the three-part Spend Matters PRO series we make a number of additional observations across the product suite, all of which we hope prove moot if and when the DOJ calls off its probing, and lets the sector -- and all of procurement -- get on with the business of driving savings, improving compliance, encouraging supplier innovation and applying a better set of standards to improve supplier conduct and behavior worldwide. This would be the right move for procurement organizations, competition and the overall industry.

- Jason Busch

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