Germany's SAP has agreed to buy U.S. expenses software maker Concur for $7.3 billion in cash, strengthening its position in cloud computing but sending its shares down almost 3 percent on concern over the price.
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 % 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 % 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 lacklustre 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.
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 % 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.
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.
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 % at 58.45 euros by 0859 GMT, the biggest decliners in a 0.6 % 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 % rise in revenue to $178.37 million in the quarter to June 30, have fallen more than 17 % 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 amortisation (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.