SAP acquires Concur, pays a whole lot of money for some T&E software …

On Thursday last week, software giant SAP announced the acquisition of Concur, whose products help enterprises simplify travel expense management. It has over 23,000 clients and 25 million active users across 150 countries, including a pretty strong European presence, and is generally considered one of the largest companies in the travel and expense (T&E) management software sector. In 2013, Concur had revenues of $545.8 million and declared a loss of $24.3 million.

My US-based Spend Matters colleagues wrote some excellent, insightful and (to SAP itself) challenging analysis at the end of last week, including their analysis of the investor call from the SAP CEO. In that, the SAP CEO Bill McDermott said this:

“SAP is the only company in the industry with the depth to help enterprises manage permanent employees, flexible workforces, goods, services, and now travel & expense on one cloud platform.”

So the positioning of the acquisition is to fill a gap for SAP in that end-to-end spending management picture, with Concur filling the T&E space. But, as Jason Busch and co point out on our sister site, there isn’t a simple, consistent offering from SAP in the wider spend management space – it is an “architectural mish-mash.”

And the financials of the deal are fairly breath-taking. SAP is paying well above the recent market price for Concur. The purchase price of $129 per share is a 20% premium to the previous closing price, and more than twice the price less than two years back. The overall valuation the acquisition places on Concur ($8.3 billion) represents more than ten times a forward revenue multiple based on Concur’s current run rate of approximately $180 million revenues per quarter – and the firm is not profitable.

But, as my colleagues point out, SAP needs to grow to keep its own share price moving in the right direction. Faced with increased competition to Ariba from others offering “supplier networks” (we've written about competitors here, everyone from Coupa to Proactis, Basware to Vortal), and with a supplier charging model that is pretty unpopular, not to mention the corporate infighting that has been widely reported, “SAP has to grow” as my colleagues say (in bold type!)

And it might work – here are my colleagues again.

“That is a lot of money, but did SAP overpay?  At first glance, you would have to think  yes, but you have to dive a little deeper.  Concur has a great little ecosystem. And the TripIt acquisition was a master stroke: visibility across all itineraries (sounds like a good job for HANA). But, it has a ‘business network’ that really works, and works in a way that is consistent with what SAP should be moving toward – and that is to provide a platform and ecosystem of partners (and itself) using HANA-powered apps and truly open networks (not just the Ariba network marketplace and Quadrem). It’s not a closed toll road.”

However, the share price of SAP itself fell almost 5% on the news of the acquisition – not exactly what the firm wanted. Along with Ariba and Fieldglass, Concur represents a series of big bets SAP is making on putting together what they hope will be an unbeatable range of products in the sector. We will see in time if the bets pay off, but don’t forget, have a look at our US coverage for a lot more detail and insight - the links are here.

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