Yesterday, SAP subsidiary, SAP America, Inc., announced their intention to buy Ariba for approximately $4.3 billion. The transaction is expected to close sometime in the third quarter of 2012, and be accretive to earnings in 2013.
The combination of SAP's application expertise and Ariba's global trading network was noted as a primary reason for the acquisition in the official press release. SAP had given us previous indications that the "business web" was going to be a particular emphasis in 2012, but we certainly had no indication that the splash would be as big as Ariba.
SAP's previous acquisition in this area, Crossgate, was more modest and centered on connecting the network through data and document interchange. Ariba magnifies SAP's business web capabilities by adding a robust commerce network keeping in mind that the Ariba management team had moved the company beyond procurement into selling tools for the suppliers, financial settlement, and benchmark information. The Ariba/SAP business web is also a means to unify the enterprise (Business Suite) and mid market offerings (Business One, Business By Design) as every SAP customer can connect.
From another perspective, the acquisition investment by SAP in 'emerging technology' areas is now significant - Ariba now, on the heels of SuccessFactors in 2011 and Sybase in 2010 - and the synergies appear to be strong. As I noted in my Ariba Live summary, the company has $320 billion in annual spend managed on their trading network, and aspires to $1 trillion. Certainly this goal is facilitated by the addition of close to 200,000 SAP clients, and frankly, that aspiration will now likely be higher.
In considering the three large acquisitions for SAP in the last two years, it seems to reflect a significant course change - or at least recognition that emerging technology areas like mobility and cloud indeed reflect the future growth in the IT industry. Indeed, I think it is fair to suggest that SAP have done a particularly good job of positioning themselves for future growth. It was not too many years ago that I was starting to feel that the company was falling victim to the 'innovator's dilemma'. SAP was the quintessential immovable object; the large, on-premise, ERP behemoth that was getting more and more out of step with the things manufacturers were looking for, namely speed, agility and flexibility. Sure, there were things like rapid deployment solutions (RDS) designed to increase implementation speed, but winning in the cloud seemed destined for newer, smaller, more agile companies. Yet, in the 2 plus years that SAP has featured a co-CEO arrangement, the company has surprised many with large, decisive acquisitions clearly designed to capitalize on mobility (Sybase) and cloud (SuccessFactors, Ariba); and promising internal innovations for big data and analytics (HANA).
While growth appears to be solidly with the four new pillars of IT - mobility, cloud, big data, social business - it is also important to remember that a significant portion of the business base still does business 'the old way'. Looking for growth, while forgetting to protect the business base, has been the undoing for many companies. SAP is increasingly looking like they have both covered. It will be an interesting ride to watch.