SAP to acquire Ariba, expand presence in the Cloud

Taking large steps to expand its presence ERP giant SAP announced this week that its subsidiary, SAP America Inc., has entered into an agreement to acquire Ariba, a 15-year old cloud-based supply chain management technology provider for roughly $4.3 billion.

SAP officials said the deal is expected to close in the third quarter.

SAP said that by bringing Ariba, the leader in cloud-based collaborative business commerce, into the fold, it “establishes SAP as the leading business network, adding business-to-business collaboration to its existing solutions.” The company added that this deal will mesh Ariba’s buyer-seller collaboration network with SAP’s broad customer base and deep business process expertise to create new models for business-to-business collaboration in the cloud.

“With our agreement to acquire Ariba, the most successful global trading network in the world, we are taking another bold step in our strategy to achieve leadership in the Cloud,” said SAP Co-CEO Bill McDermott on a media and analyst conference call. “With this acquisition SAP will also become the clear leader in on-demand supplier relationship management or SRM.”

McDermott cited data from Forrester Research, which stated that Cloud-based procurement and network segments are currently valued by Forrester Research at about $5 million annually, with Cloud-based SRM technology growing nearly 20 percent in 2011.

The co-CEO also noted that the Cloud is fundamentally changing not only the way in which individuals interact with each other but also how enterprises connect and work with their global networks of customers, suppliers, and partners.

“With this strategic transaction we are moving beyond the individual enterprise in establishing SAP as a leader in the fast growing segment of inter-enterprise Cloud based business networks,” said McDermott. “This is a game-changing opportunity for SAP that complements and accelerates our existing on-premise core business as well as our Cloud offering. The acquisition of Ariba will also advance us significantly towards realizing $2 billion in Cloud revenue by 2015.”

This acquisition, according to McDermott, will bring SAP customers the largest business-to-business transaction network for buyer-seller collaboration in the world, with more than 190,000 SAP customers gaining instant access to Ariba’s Cloud-based network of 730,000 companies—and expected to grow to more than 1 million this year.

Ariba has an expected revenue growth rate of more than 50 percent in the current fiscal year, and the company has nearly 5 million paying subscribers for more than 60,000 companies and had $444 million (U.S.) in fiscal 2011 revenue as the second largest Cloud vendor globally as measured by revenue.  The Ariba network has more than 420 strategic large buyers, including Walt Disney, Deutsche Bank, and Exxon Mobil, among others.

SAP co-CEO Jim Hagemann Snabe said on the call that SAP will enable all of its solutions to connect to the Ariba network “out of the box” so large companies running the SAPBusiness Suite and small and medium-sized enterprises running SAP All-in-One, SAP Business One, or SAP Business ByDesign can leverage and benefit from the Ariba network. And he explained that this deal, which combines network and procurement solutions from Ariba and SAP, will deliver 360 degree business intelligence to provide companies with greater insight into their spending.

Ariba CEO Bob Calderoni said on the call that being part of SAP will accelerate the growth and value of the Ariba network by adding more roads and on-ramps and more commerce to an already leading global trading community.

“Joining forces with SAP gives us additional resources and gives us additional reach to accelerate our stated goal to enable more than $1 trillion in commerce by 2015 and far more than that in the years beyond,” said Calderoni. “The combination with SAP also comes at a time when there’s a revolution occurring in business. Having leaned out internal operations and stretched their customer supply chains across the globe, enterprises have become more and more dependent upon external partners. Boosting productivity and enhancing collaboration with these external partners are the top priorities for business leaders today. So the union of Ariba and SAP combines the strength of two organizations, each individually rich in talent.”

An industry analyst told LM that this deal is significant in that SAP chose to “buy” rather than “build” to enhance their capabilities in the spend management area.

“It would be exciting indeed if this represents a larger strategy shift in this space to make SAP’s supply chain execution applications (WMS, TMS, etc.) more competitive,” said Ian Hobkirk, Managing Director, Commonwealth Supply Chain Advisors. “It’s somewhat reminiscent of Oracle’s acquisition and successful integration of G-log in 2005. G-log remains a leading TMS application with a large stand-alone deployment base.”