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Transaction
Case Studies

Peter A. Sokoloff & Co. regularly analyzes transactions which occur within the industries covered. An archive of these case studies is kept online as a courtesy to our colleagues. To receive by e-mail new case studies as they are prepared, please e-mail bwalko@sokoloffco.com with your contact information.

Archives > Transaction Case Study 64

SOKOLOFF & COMPANY CASE STUDY
SAP AG (NYSE: SAP) to acquire Ariba, Inc. (Nasdaq: ARBA)

DATE ANNOUNCED:  May 22, 2012
BUYER:  SAP AG (NYSE: SAP)
SELLER:  Ariba, Inc. (Nasdaq: ARBA)    
PURCHASE PRICE:  $4.51 Billion
FORM OF PURCHASE PRICE:  Cash at $45 a Share funded by SAP from cash on hand and a €2.4Billion term loan facility.

SELLER’S FINANCIAL INFORMATION AND M&A MULTIPLES

Year 2010 2011 Trailing Twelve Months
Year Ending
March 31, 2012

Revenue

$320.40M

$443.85M

$501.78M

EBITDA

$29.10M

$29.48M

$40.86M

Cash

 

 

$196.39M

Debt

 

 

0.00

Purchase Price

 

 

$4.3B

Enterprise Value

 

 

$4.1B

Multiple of Revenue

 

 

8.18

Multiple of EBITDA

 

 

100.43

TRANSACTION DRIVERS:  Industry experts estimate the cloud-based enterprise network and procurement segment at a current size of $5 billion in revenue. The Ariba network is the largest and most global trading network, connecting and automating more than $319 billion in commerce transactions, collaborations, and intelligence among more than 730,000 companies.  SAP’s global customer base of more than 190,000 companies includes the largest buyers and sellers in the world, offering great potential to increase the number of participants, as well as the volume and types of transactions conducted through this network. 63% of the world’s transaction revenue touches an SAP system, presenting obvious potential for growth .

SAP is in a rivalry with Oracle to become the largest cloud vendor by revenue.  SAP Co-CEOs Bill McDermott and Jim Hagemann Snabe said “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.”

SOKOLOFF COMMENTARY:
Wow, an eye popping valuation has SAP betting big on the cloud computing space.  While there will be cost benefit from consolidating SAP’s other cloud apps into Ariba, the acquisition is a strategic gamble which will not pay off in accretive dollars and cents for many years to come.  With this acquisition, Cloud computing appears to have reached an apex similar to the 1999 internet-style bubble.  Amid hope and hurricanes, the resultant field was left littered with victims of competition, commoditization and obsoleted technology.  And so it will likely be with Cloud computing and its many hand maidens.
On the positive side, the Ariba valuation is just 6% of SAP’s market cap.  Overpay or not, the ARBA acquisition is a small meal which won’t upset any stomachs in the near term.  And the combination with Ariba makes good intellectual sense.  However, it will be interesting to see how an arch enemy like Oracle responds.  And how about IBM who just bought Ariba competitor Emptoris?

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