SAP AG yesterday revealed that it was buying US business and commerce network company Ariba Inc for $4.3 billion, its biggest push in the fast-growing internet-based computing market and keep pace with its arch rival Oracle Corp.
The deal comes five months after SAP acquired US-based web-based software company SuccessFactors for $3.4 billion. (See: SAP to buy Success Factors for $3.4 bn)
Under the deal that has been approved by Ariba's board, SAP will pay $45 a share, a 20-per cent premium to the company's closing price on 21 May. The purchase price values the Ariba at about 10 times its annual sales.
With around 2,600 employees and annual revenues of $444 million, Ariba is the leader in cloud-based collaborative commerce applications and the second-largest cloud vendor by revenue.
The company combines software-as-a-service (SaaS) technology with a Web-based community and a global network of trading partners.
Founded in 1996, Ariba was one of the first web-based trading companies to go public in 1999 with its stock value worth $6 billion on the first day of trading. With the bursting of the dot-com bubble, Ariba's stock fell to just over $1.5 billion in July 2001. Its current market capitilisation is around $3.77 billion.
Ariba has grown through aggressive acquisitions, with the latest being the purchase of privately held procurement and strategic sourcing software provider for the mining industry Quadrem Inc in 2011 for $150 million.
Its business-to-business network connects 730,000 companies with transactions worth $319 billion per year, SAP said. It said it would keep the network open, letting companies that use competing business software packages from Oracle and Microsoft connect to it.
Industry experts estimate the cloud-based enterprise network and procurement segment at a current size of $5 billion in revenue. SAP's global customer base of more than 190,000 companies includes the largest buyers and sellers in the world, and 63 per cent of the world's transaction revenue touches an SAP system, said SAP in a statement.
"By combining Ariba's open global trading network and SAP's solutions and analytics, we are ushering in a new era of business-to-business collaboration and driving new levels of productivity," said Bob Calderoni, CEO of Ariba.
"The cloud has profoundly changed the way people interact. The impact will be even greater as enterprises connect and collaborate in new ways with their global networks of customers and partners," said SAP co-CEOs Bill McDermott and Jim Hagemann Snabe.
"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."
SAP plans to pay for the acquisition with cash it has on hand and also through a €2.4 billion loan facility.
Both SAP and Oracle have in recent years made a big push in the cloud-computing market. Oracle with its more complete, tightly linked collection of software has enjoyed an edge over SAP, which has been feeling the impact and has been looking to acquire the technology sooner to counter Oracle.
Oracle acquired Taleo Corp, a maker of Web-based talent management tools, and RightNow Technologies, a maker of customer-service applications that are delivered over the cloud, while SAP acquired Sybase Inc, a maker of software for wireless internet transactions and web-based software company SuccessFactors.