Yesterday's announcement from SAP ended months of discussion on who will buy cloud collaborative commerce vendor Ariba. As I've said a few times, most of the larger pure-play cloud vendors are getting a look by traditional large software application vendors, who need to quickly build out a cloud application portfolio. The offer, $4.3B, represents a significant premium of 106X trailing 12 month Ebitda, dwarfing the industry median for software acquisitions from 2002 to today of 16X. The price represents a 20% premium on Ariba's closing price on 5/21 but is considerably less than the 52% premium it paid for SuccessFactors last Fall.
Even though SAP executives have consistently derided Oracle over it's acquisition spree over the last 7 years, it is now clear that SAP is trying to follow the same strategy to buy its way into the cloud. SAP did make an attempt at building its own offering of course, but the efforts were arduous, proving that it's not easy to change from an on premise mindset to a cloud mindset, and are only now starting to provide some cloud assets that can be used to take SAP forward. The SuccessFactors acquisition offered the most compelling addition to SAP's cloud efforts, bringing both product and expertise, acquiring Ariba should accelerate this.
Ariba brings several important things to SAP and is an excellent addition to its cloud portfolio. From a product perspective Ariba has a mature and feature rich set of cloud based procurement, sourcing and contract management tools that, if integrated into the SAP business suite and sold by the much larger SAP sales force, could prove to be a significant money maker for SAP. Ariba also brings cloud expertise in the form of developers, support agents, sales personnel and executives that is badly needed in the SAP stable. Lastly, what might be the most important asset in the deal, Ariba brings a large and well developed supplier network / B2B community that is the most mature and respected community of this type. This asset isn't something that any other company could easily duplicate, although it will be a challenge for SAP to ensure that it continues to be managed effectively.
From a customer perspective there is some benefit on both sides of the deal. SAP provides access to resources that are far beyond what Ariba could have done on its own, so there is a strong likelihood that future releases will benefit. SAP customers, many of whom are already Ariba customers, get what should presumably be a much more tightly integrated solution and access to more cloud assets in the growing SAP cloud portfolio. Overall this deal should be positive for both companies and both customer bases.
(Cross-posted @ Michael Fauscette)