This posting is an obvious follow-on to our prior commentary about this September turning out to be a noteworthy month for technology related announcements.
Yesterday, SAP announced its intent to acquire Concur Technologies, a provider of cloud-based travel and expense management software. SAP was willing to shell out a whopping $8.3 billion in one of this enterprise technology provider’s largest acquisition deals to date, surpassing the prior acquisition database technology provider Sybase for $7.1 billion in 2010. It is also one of the most significant moves under the leadership under the now singular CEO leadership of Bill McDermott.
After pondering the announcement, the SAP user community should wonder whether SAP is again taking precious financial resources away from its mission of supporting manufacturing and service industry core business process support needs. Instead, this enterprise software provider has an apparent focus on being a multi-purpose business network company in the definition of SAP.
According to business media reports, Concur reported revenues of $546 million and an operating loss of a little over $24 million in its latest fiscal year which ended a year ago in September 2013. In its announcement, SAP indicates that Concur has a revenue run rate of more than $700 million in its current fiscal year, implying a revenue growth rate in the mid-twenty range. That is not all that spectacular for hot, cloud-based tech providers.
SAP was willing to invest half the Concur amount, namely $4.5 billion in its acquisition of cloud-based sourcing and procurement provider Ariba, which is now an SAP operating company and is being positioned as a longer-term cloud-based strategic platform for B2B supply chain sourcing, planning and procurement in direct and indirect materials support areas. SAP has since acquired Fieldglass, a cloud-based provider of contingent labor and services management technology to augment Ariba network capability. But as SAP procurement and supply chain customers have noted, the product roadmap for broader diversified business network potential benefits currently span a long, multi-year window, with multiple moving parts involving other SAP technology and applications areas. One can certainly speculate that Ariba as a stand-alone entity would execute at a far faster pace.
SAP is thus willing to pay in excess of a 10x multiple, no small change, to secure long-term strategic potential in an indirect procurement services category. Granted, travel makes-up a considerable expense for any company, but for larger enterprises, the product value-chain is of higher importance to bottom-line results. The business travel services field is a very crowded one, providing competition challenges with other noteworthy existing players, which will surely get more dynamic with this news.
Readers should note that in their announcements related to business network moves, enterprise vendors emphasize the value of transactions within the network. In the specific case of this Concur announcement, the number communicated is $600 billion in transaction volume. That is the clue toward the real intent, that being incremental revenue growth from transaction fees. However, customers and their procurement teams have become more savvy in this game, and are not reluctant to trade one business network for another if transaction costs exceed budget goals.
At first blush, this Concur deal appears to this author to be more about feeding SAP’s sales teams with added deal volume. That impression is reinforced by statements indicating that the majority of SAP customers do not currently run Concur. Giving the benefit of doubt, we certainly do not have privy to the full picture, thus we along with SAP customer and partner universe will have to await more articulation regarding yet another elongated business network player and roadmap.