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SAP Seeks Welcome Cloud Cover

Wall Street Journal - May 23, 2012

Cloud computing firms are fetching sky-high prices. SAP's SAP.XE -0.90%planned $4.3 billion acquisition of online marketplace Ariba ARBA +0.07%is the most recent deal in a late scramble by technology giants to buy "cloud," or Web-based, software specialists. It looks an expensive way to get airborne. But cloud-based services, which threaten traditional software providers, are growing too fast for SAP to drag its feet.

Ariba is costing SAP dear. At a 20% premium to its prebid share price—already up 35% this year—SAP's bid values Ariba at 7.3 times the coming year's consensus revenue estimates, notes UBS. That is way above the five to six times forward sales paid for other cloud-based acquisitions this year and the 4.8 times' average at which Ariba's peers trade. Cost synergies will be limited: SAP has only a small Web-based marketplace of its own and plans to run Ariba as a stand-alone company.

Still, Ariba would be a good addition to SAP's core business: selling software to manage companies' data and financial transactions. Ariba runs the world's leading online-trading community, bringing business buyers and sellers together. Fast growth explains some of its high price-tag. Analysts were forecasting 18% annual revenue growth as a stand-alone business. Selling its procurement services to SAP's more than 190,000 customers could be a further big boost. SAP plans to add its data-analysis tools to Ariba's contract and invoicing software, enabling firms to compare suppliers better. Ariba isn't a huge deal for SAP, with its €58 billion ($73.6 billion) market capitalization, and €1.6 billion of net cash.

Read Full Article from Wall Street Journal

- Posted: 2012-05-23 14:29:26

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