SAP To Acquire Concur Technologies To Boost Cloud Sales

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German enterprise software vendor SAP SE (NYSE:SAP) made headlines on September 18 after it announced that it will acquire Concur Technologies for $8.3 billion, marking it its biggest purchase ever. [1] Concur Technologies is a leading provider of integrated cloud-based travel and expense management solutions. The acquisition is expected to be completed by Q1FY15 and could significantly increase SAP’s cloud run-rate going forward.

Investors, however, did not greet the news favorably, due to the hefty valuation, we believe, with shares of SAP on the NYSE falling over 4% . With revenues of nearly $862 million expected for the fiscal year ending September 2015, Concur looks to be valued at approximately 9.6x forward FY sales. Comparatively, recent acquisitions in the SaaS space, such as Salesforce’s acquisition of ExactTarget and Oracle’s acquisition of Responsys, had acquisition multiples much lower than SAP’s priced bid.

Below, we take a brief look at Concur Technologies and how it fit into the broad product portfolio of SAP.

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Concur Could Accelerate Cloud Growth for SAP; Expected to Strengthen SCM Portfolio

Concur is the leading innovator in the $1.2 trillion corporate travel industry. The cloud-based provider of integrated travel and expense management solutions has over 20,000 clients around the globe and is accessed by over 25 million users. Through the acquisition, SAP intends to further strengthen its presence in the networked economy. Ariba, which was acquired by SAP for $4.3 billion in 2012, provides procurement solutions for more than 1.5 million companies transacting approximately $540 billion. [2] By integrating Concur’s travel and expense management offerings with Ariba’s procurement solutions, SAP believes the addressable size of the business network could expand to more than $600 billion in transactions annually across 25 different industries. [1]

Concur derives nearly 84% of revenues from the U.S., followed by 11.5% from Europe and the remaining from other International markets. Revenues for fiscal year ending September 2014 are expected to reach approximately $700 million, increasing by about 28% year-on-year. The acquisition lifts SAP’s full fiscal year cloud revenue run-rate from approximately $1.6 billion to a proforma estimate of more than $2.3 billion. Comparatively, Oracle’s cloud revenue run-rate for full fiscal year 2015 is reported to be close to $2 billion. [3] Additionally, SAP CEO Bill McDermott states that the acquisition could provide meaningful synergies and accelerate Concur’s own revenue growth rate by at least 10 percentage points to cross 40%.

At this point, SAP’s acquisition of Concur looks to be a play on growth, and the battle between SAP and Oracle looks to be intensifying. We will follow-up with a deeper analysis of the acquisition in our subsequent articles on SAP.

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Notes:
  1. SAP to Acquire Concur, Expanding the World’s Largest Business Network, SAP Press Release, September 2014 [] []
  2. SAP Announces Second Quarter 2014 Results, SAP Investor Relations, July 2014 []
  3. Oracle’s (ORCL) CEOs Safra Catz and Mark Hurd on Q1 2015 Results – Earnings Call Transcript, Seeking Alpha, September 2014 []