SAP to buy Ariba, boosts cloud bet

Reuters: Top European software company SAP AG plans to buy Ariba Inc in a deal valuing the business and commerce network company at $4.3 billion, its latest maneuver against Oracle in the fast-growing Internet-based computing market.

SAP is taking aim at Oracle, the world’s number two maker of business management software, as they vie with Salesforce.com Inc in the multibillion dollar cloud-computing services market, one of the industry’s hottest area of growth.

Shares in Ariba, which were halted briefly, leapt 20 per cent to SAP’s offer price of about $45 per share.

“This deal puts them more on the radar screen and gives them another big customer base they can sell additional services into. These are not inexpensive moves but it signals they are really tilting more toward the cloud,” said Evercore analyst Kirk Materne.

SAP’s announcement comes just weeks before Oracle CEO Larry Ellison is due to announce the Silicon Valley company’s latest cloud software strategy, on 6 June.

The $45-per-share offer for Ariba, a darling of the first dotcom boom that has since reinvented itself as a major networking and online commerce software developer, values Ariba at 6.9 times expected 2013 revenue, according to Roth Capital Partners.

Salesforce.com trades around 5.5 times expected revenue.

The purchase of Sunnyvale, California-based Ariba would be the latest in a string of acquisitions by German technology company SAP to help fuel its revenue growth and expand its cloud computing business.

SAP said it expected the deal, already approved by Ariba’s board, to close in the third quarter. But Cross Research analyst Richard Williams said that since many of Ariba’s customers use Oracle services, there is good reason – and precedence – to expect the US-based Oracle to make a rival bid.

In 2005, Oracle snatched retail software maker Retek away from SAP after a bidding war that reached $630 million.

“Strategically it’s a valuable asset and would disadvantage Oracle if SAP were to close the deal, so I can see a case for why Oracle would feel the need to enter into the bidding to protect its own potential growth opportunities,” Williams said.

Cloud computing refers to providing software, storage, computing power and other services to customers from remote data centers over the Web.