SAP made quite a splash when it poured billions into acquiring cloud human capital management (HCM) provider SuccessFactors in December. But the German software giant was nowhere near finished staking a claim in the business cloud services market. SAP late yesterday announced that its SAP America subsidiary is buying Sunnyvale, Calif.-based Ariba for its cloud-based business marketplace.
SAP will spend $45 a share -- a 20 percent premium over the closing price on May 21 -- or an estimated $4.3 billion to acquire Ariba. The companies expect the transaction to be finalized in the third quarter pending regulatory clearances and customary approvals.
SAP plans to consolidate all of its cloud-related supplier assets under Ariba when the deal closes. At that time, it's expected that Ariba will operate as an independent subsidiary with its current management team intact.
Advancing SAP’s Cloud Ambitions
The Ariba Network is a cloud-based, business-to-business (B2B) marketplace that serves a trading partner community of more than 730,000 companies and processes over 250,000 purchase orders and payments daily.
Developed to drive efficiency in business procurement, ease supply chain interactions and promote collaboration between buyers and suppliers, the company's technology helps move approximately $822 million worth of goods and services each day. Ariba estimates that every day it helps save businesses $82 million in supply costs. Little wonder that the company caught SAP's eye.
According to SAP co-CEOs Bill McDermott and Jim Hagemann Snabe, Ariba is a good fit for the business software maker's cloud ambitions. Boasting that 63 percent of worldwide transaction revenue "touches an SAP system" -- not to mention SAP's 190,000 customers -- SAP says the combination of the two companies will give the Ariba Network a significant boost in both participants and transaction volumes.
"The addition of Ariba will create the business network of the future, deliver immediate value to our customers and provide another solid engine for driving SAP's growth in the cloud," said McDermott and Snabe in a company statement. And they're not the only ones that think so.
SAP's Fast Track to B2B Clouds
To compete in the cloud, time is of the essence. Late last year, SAP acquired cloud-based HCM specialist SuccessFactors for $3.4 billion. Apart from paying a premium for another business cloud services leader, the Ariba deal mirrors the SuccessFactors buy in one crucial respect: time-to-market.
In an Enterprise Apps Today report, Forrester analyst Paul Hamerman weighed in on the time pressures that influenced the SAP-SuccessFactors transaction.
"Time-to-market has been a challenge for SAP's SaaS strategy in general, and this product was likely to be too little, too late," he stated. "Hence the urgency for SAP to pay a large premium to acquire a leading player in talent management. Having SuccessFactors on board represents a significant opportunity to sell the acquired products into the existing ERP installed base.”
Fast forward six months and some of the same factors remain in play, according to Carter Lusher, chief IT analyst at Ovum. "This is a logical step for SAP as it needs to accelerate its move into the cloud. This acquisition is consistent with SAP's overall M&A strategy and complements the SuccessFactors acquisition in December – providing greater depth of products, executives, and tech talent for the cloud.”
Lusher added that SAP typically heaps R&D dollars onto its new acquisitions, and that it's unlikely that any of its products and services will be cut. Nor does he expect SAP to start thinning its 2,600-employee- talent pool.
What's in It for SAP's Existing Customers?
SAP customers will hop on Ariba just as fast as SAP is bulking up its cloud services, said Tony Filippone, executive vice president of Research for HfS Research. "SAP's customers are likely to rapidly adopt the network," he wrote in a blog post. Why? New cloud-enabled levels of automation and scale.
"SAP customers gain network capability that automates their [order to cash] O2C and [procure to pay] P2P processes," Filippone said. "With an installed license base of 190,000 customers, SAP enters the cloud technology world with a real commercial network. This exposes SAP's industrial, manufacturing, and CPG clients to a modern method of conducting O2C and P2P business.”