The enterprise software giant SAP has purchased the cloud-based commerce developer Ariba for around $4.3 billion, the companies announced Tuesday.
The deal will see SAP pay a 20 percent premium on Sunnyvale, Calif.-based Ariba’s closing share price on Monday.
Both companies operate procurement platforms, which among other things, allow users to procure transportation contracts from vendors.
But an industry analyst said the deal may not mean much to the transportation and logistics industry.
“The deal is largely immaterial (in the logistics arena),” said Jason Busch, managing director of Spend Matters, a blog and research organization focused on procurement. “When it comes to the world of indirect procurement, Ariba excelled. But when you get to direct supply chain, other than back and forth invoices, Ariba was doing very little there. What Ariba did was core procurement on the indirect side, not core fulfilment. They’re not arranging small parcel deals with FedEx. Ariba was about the financial connectivity.”
Busch said that for SAP the deal was about acquiring two distinct sets of assets.
“The first set is an end-to-end suite in the source-to-pay process,” he said.
That includes functions like spend analysis, contract management, strategic sourcing, supplier management, e-procurement, and e-invoicing, areas where Ariba has “across-the-board coverage,” he explained.
But SAP also was after Ariba’s network, which Busch called “the plumbing behind the network between buyers and sellers. That plumbing is pretty significant. It doesn’t just happen that I order toner.”
SAP offers many of the systems that it has bought from Ariba, but SAP’s purchase doesn’t necessarily indicate it believes Ariba’s is better.
“Whose system is better, that’s a judgment call,” he said. “Ariba’s (peer-to-peer) network and invoicing is better, but SAP was winning business from Ariba just because of systems consolidation.”
When it comes to transportation procurement, both SAP and Ariba offer services, but Busch said both were minor players that lacked the robustness of other vendors like CombineNet, BravoSolution, Trade Extensions, or Emptoris, among others.
“Nobody sources transportation spend from Ariba,” he said. “This is a huge deal when it comes to indirect supply chain, depending on what SAP does with the assets. SAP is doing some fascinating things internally.”
He pointed out SAP has been developing its own internal cloud-based platform, called Supplier Infonet, that has more of a direct effect on supply chain than anything the company might gain from the Ariba acquisition.
“Ariba was a leader in the world of purchasing unto itself, but that’s separate from supply chain,” he said.
Another analyst said the purchase doesn’t add up from a financial perspective.
“I’m stymied,” said Steve Banker, director of supply chain management for the ARC Advisory Group. “I don’t get why SAP would pay 10 times revenues for a firm that lost money last year. I don’t get why the premium was only 20 percent, which means many investors were paying a high price for Ariba.”
He agreed that the deal doesn’t mean all that much for the logistics industry.
“As far as transportation procurement, neither SAP nor Ariba have great domain expertise here. There is some special functionality needed in this area to be best of breed.”
SAP said in a conference call Tuesday it expects to benefit from the transaction by leveraging its current customer base against that of Ariba, calling it a “game-changing opportunity.”
“This is a gravity game – there can only be one strong network,” the company said during the call. “We believe we have the strength to be a vast network.”
Outside of the pure supply chain realm, the deal represents a further venture for SAP into cloud-based software. The company battles rival Oracle on a global basis in the enterprise solutions market and attendant systems (including trade management and transportation software).
Ariba executives said the deal is exciting for its shareholders and customers. SAP indicated the Ariba brand will continue to exist, adding that it’s the second-largest cloud vendor by revenue.
“The cloud has profoundly changed the way people interact,” said SAP co-chief executive officers Bill McDermott and Jim Hagemann Snabe. “The impact will be even greater as enterprises connect and collaborate in new ways with their global networks of customers and partners. Cloud-based collaboration is redefining business network innovation, and we are catching this wave in the early stage of its evolution. 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.”
Ariba CEO Bob Calderoni will also remain, becoming a member of SAP’s Global Managing Board.
“In our personal lives, networks are playing an increasingly important role in how we connect, share, and shop – bringing more insight and efficiency into everything we do,” Calderoni said. “Businesses are looking for the same connectedness, insight, and efficiencies in the processes and collaboration with customers, suppliers, and partners beyond the walls of their companies.”
Calderoni stressed the benefits Ariba will enjoy by having access to SAP’s vast network of users.
“By combining Ariba’s open global trading network and SAP’s solutions and analytics, we are ushering in a new era of business-to-business collaboration and driving new levels of productivity,” he said.
SAP said it will fund the acquisition with free cash and a 2.4 billion euro loan facility, with the deal expected to close in the third quarter. – Eric Johnson
SAP buys procurement leader Ariba
