SAP buys Ariba for $4.3B – rather pricey, but still a good deal


As I was fighting jet lag and lying wide awake on my hotel bed in Bangalore yesterday night, I saw the news on twitter that SAP is going to buy Ariba for $4.3B. When IBM bought Emptoris earlier, there was always a question of who will buy Ariba – and my bet was on Oracle. And I am happy that it is SAP who finally did it. I am not sure why SAP did not announce this at SAPPHIRE last week, but I guess it doesn’t matter really.

Jim Snabe told us at Orlando last week that he envisions SAP to be a big player in business networks. At that point, several acquisition scenarios flashed through my mind, but Ariba was not on that list. As a matter of fact, Ariba hadn’t even crossed my mind for a few years now. They make less than a $500M in revenue,so my first thought was $4.3B was too much of a premium. Now, looking at the market cap – it looks like SAP is paying about 20% above closing price. Given the high multiples companies like SAP are paying for buying cloud companies, I wonder when they will generate real profits.

Ariba’s Calderoni will be a terrific addition to SAP’s board. I absolutely loved his decision to hive off services wing of the company to Accenture some time ago, so that Ariba can focus on what it does best. He was a CFO before he got the big job, and he is on the board of directors of Juniper Networks and KLA-Tencor. SAP could definitely use his experience well.Of course Ariba was not always a cloud company. So there is a learning opportunity for SAP here on how they can transform their big on-premises model into a more cloud enabled organization, by using Ariba’s experience. The one thing I do not understand at the moment is how Lars will lead the whole cloud business unit, and Ariba remains independent. Hopefully some one can provide clarity on this.

It is a bold move from SAP’s side for sure. They just paid more than $3B for SFSF few months ago, and now shelling out another $4.3B for Ariba shows a firm commitment to cloud. And it is consistent with their stated strategy of focusing on customers, vendors, money and people.

As I think more about this – the contrast with SFSF is quite apparent. SFSF is a solution that addresses more people since it is for employees. However, it is only used occasionally during the year due to the nature of the problem it solves. Ariba on the other hand targets much fewer users – but the usage is pretty high since it keeps track of purchases globally. So, SAP now has expertise in both models of cloud solutions.

I have a feeling that my buddy Sameer Patel is excited at the prospects of this acquisition. Ariba, at the heart of what it does – is all about enterprise level collaboration for purchasing/trading, which is close to Sameer’s heart. It makes even more sense now that SAP wisely hired Sameer.

Unifying all these cloud solutions – some acquired, some home grown into one consistent architecture and UX, is a complex task. But who better than Vishal Sikka to take that on? I think Ariba will have tremendous use of HANA compared to SFSF. SAP also can derive some synergy with BW and BOBJ in the context of what Ariba does for enterprises.

SAP has its strength in some of the atomic processes in Source to Pay, and Ariba has in some. And there is plenty of overlap between SAP and Ariba for now – and I am sure that will get rationalized over time. With the combined force of SAP and Ariba, Source to Pay could see some real innovation (Source to Pay is one of the most frequently outsourced business process, mostly due to manual steps) in business process. Combined with HANA – I am sure we will see a lot of change in SAP’s and Ariba’s user base.

In general, but for the heavy premium they paid, I am a big fan of this acquisition by SAP. And If I am wrong – I will blame it on jetlag :)

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6 thoughts on “SAP buys Ariba for $4.3B – rather pricey, but still a good deal

  1. Thanks so much for the kind words, Vijay. I cant be more excited about this buy, as you can (and have) imagined. – )

    Re: Usage of HCM being occasional – the nature of those solutions are changing as well. For instance, if you look at our informal learning products that complement traditional LMS, you see how its used in the daly course of work to improve execution, as opposed to the levels of frequency of usage for systems of record.

  2. What does this say about the gazillion dollars than SAP has already invested in its SRM products? And what does it mean for customers who have committed to SAP’s SRM solution? To me, it does smack of an Oracle mindset – acquire your way into a space and throw the same logo on a bunch of disintegrated pieces and parts, then try to sell it as a cloud SaaS solution. It also speaks poorly of SAP’s ability to innovate internally, does it not?

    • Good points – as I mentioned in my post, rationalization of functionality is necessary. Given SRM has limited footprint compared some other suite functionality SAP provides, I think in general the disruption will be minimal. And SAP will probably support existing solutions for some more time as they always do.

      SAP’s ability to innovate internally is an issue – but it is hard for any company to gain scale purely by organic means. They have an aggressive goal for 2015, and I doubt they will hit that without lot of M&A. It is not just SAP – all their competitors including ORCL do it that way.

  3. curious, why will ariba not report to lars dalgaard? dennis howlett also speculates in this article, http://www.zdnet.com/blog/howlett/sap-bulking-up-with-ariba-a-done-deal/4173. howlett seems to say there are now 2 go-to people for the cloud. ariba did $450m in 2011, successfactors did $325m. ariba has 2500 people, half as many people as dalgaard said his cloud unit now has. so ariba has more revenue with less people. who will be the real cloud chief at sap in the future, dalgaard or calderoni? caledroni is more experienced and successful in the market wtih a more mission critical service. it will be interesting sap board dynamics and politics playing out

    • The org dynamics at sap will be something to watch . No one who came as part of an acquisition has had really remarkable success at SAP . But maybe that will change now with Ariba and sfsf leaders

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