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 SAP has been slow to embrace cloud computing, which allows
businesses to cut costs by ditching bulky servers for network-based
systems, but the Concur deal announced late on Thursday accelerates
its growth in the cloud while protecting its position in travel and
expenses management.
The German business software company said it would offer $129 per
share for Concur, a 20 percent premium over the Sept. 17 closing
price and just short of the $130.36 record high Concur shares set in
January after a two-year upward run.
That is equal to the 20 percent premium SAP paid for its 2012
acquisition of cloud procurement software maker Ariba, and
comparable with the 18 and 19 percent arch-rival Oracle paid for
Taleo in 2012 and RightNow in 2011.
"It seems expensive. But we believe that Concur is the leader in its
market and the potential synergies will be a valuable addition,"
Bernstein analysts wrote in a note.
Societe Generale analysts wrote: "The shares are likely to react
negatively today given the high price paid and Oracle's lackluster
results last night."
Oracle reported profit that fell below Wall Street estimates, hurt
by weak hardware sales. It also said that Larry Ellison, its
co-founder and leader for 37 years, is to step down as CEO.
SAP, which competes in cloud computing with global rivals including
Oracle, IBM and Salesforce, will finance the Concur acquisition
through a credit facility agreement of up to 7 billion euros ($9
billion).
The company had seen the cloud phenomenon as threatening its core
business model, but it began a series of acquisitions with the $3.4
billion purchase of SuccessFactors in 2011 after Oracle embarked on
its own belated cloud-buying spree.
'SOMETHING BIG'
With the acquisition of Concur, SAP will increase its cloud users to
50 million from 38 million.
"We have something big here, guys," SAP Chief Executive Bill
McDermott told analysts and reporters on a conference call.
Concur has 23,000 clients, including companies, governments and
universities with a total of more than 25 million users of its
travel and expense-management software.
About a third of Concur users run SAP software and the German
company expects to add Concur customers.
Based on 57 million outstanding shares, the offer for Concur is
valued at $7.3 billion. Including debt, the offer represents an
enterprise value of about $8.3 billion, SAP said.
Global business spending on cloud services is expected to jump 20
percent this year to $174 billion, research firm IHS estimates,
rising to more than $235 billion by 2017.
Bernstein analysts said they believe that SAP is driving to own the
procurement process, in which customers pay based on the volumes of
goods and services they buy, rather than by the number of users,
which requires extra sales efforts.
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As well as Ariba, SAP also owns Fieldglass, which allows companies
to manage their temporary staff and independent contractors and
services.
"The advantage of the procurement usage-based models is that the
more clients procure via Ariba and Fieldgass, the more revenue is
generated," the analysts wrote.
Concur's software increasingly links suppliers and travel-management
companies, and is integrated with hotel chains including
Intercontinental Hotels and Starwood.
SALES BOOST
SAP expects to gain between 3 billion euros and 3.5 billion euros in
sales from cloud computing by 2017, out of a total of at least 22
billion, but CEO McDermott said that SAP would raise the outlook
after completion of the Concur acquisition.
SAP shares were down 2.4 percent at 58.45 euros by 0459 ET, the
biggest decliners in a 0.6 percent weaker European technology index,
amid a wider market buoyed by relief that Scotland voted to stay in
the United Kingdom.
Shares in Concur, which reported a 28.6 percent rise in revenue to
$178.37 million in the quarter to June 30, have fallen more than 17
percent since early this year. The drop has been partly down to a
general retreat by investors from high-momentum stocks but also
because of declining margins, Jeffries’ analysts wrote in late
April.
Concur trades at 44 times expected earnings before interest, tax,
depreciation and amortization (EBITDA), according to Starmine data,
against a ratio of 30 for Salesforce.com.
The Concur board of directors has unanimously approved the
transaction, which is expected to close before the end of the first
quarter of next year, subject to shareholder and regulatory
approvals.
SAP was advised by Deutsche Bank. Concur was advised by boutique
bank Qatalyst.
(1 US dollar = 0.7768 euro)
(Additional reporting by Eric Auchard and Georgina Prodhan; Editing
by David Gregorio, Cynthia Osterman and David Goodman)
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