SAP SE (SAP) yesterday announced that its subsidiary, SAP America, has signed an agreement to acquire Concur Technologies Inc. (CNQR) to form the second largest cloud company. SAP will be paying $129 per Concur share, reflecting a 21% premium over the Sep 17 closing price and an enterprise value of $8.3 billion. Subject to regulatory and Concur shareholders’ approval, the deal is likely to be completed by the fourth quarter 2014 or latest by the first quarter of 2015.
Synergies
The decision to acquire Concur is a strategic move by SAP as the combined companies will have access to over 50 million users in the cloud, which is more than any enterprise cloud company. Further, as a combined entity, it will be positioned as the second largest cloud company in terms of revenue.
Concur has a revenue run rate of over US$700 million and an extensive global reach which will be further boosted by SAP’s platform. Most of SAP customers do not use Concur, thereby providing a clear opportunity for Concur to grow as part of the SAP franchise. Similarly, only one-third of Concur’s customers currently use SAP, therefore offering a dynamic opportunity to introduce SAP innovations to the Concur install base.
Further, with the dominance of smartphone usage in travel and entertainment, the united Concur–SAP entity will focus on building network-based, context-aware mobile applications, while SAP will shift its corporate travel and expense management to Concur's integrated solutions.
Building the Business Network
This acquisition will expand SAP's business network to reach into the $1.2 trillion corporate travel gamut. Further, with the integration of the corporate travel ecosystem to the Ariba and Fieldglass networks, SAP's business network will have a prospect to power transactions that drive more than $10 trillion of global spend annually.
Meanwhile, Concur believes that SAP HANA will facilitate real-time network collaboration, changing the travel value chain by creating new business models and doing away with unnecessary intricacies faced by millions of business travelers worldwide.
Future Growth
With a customer base of more than 23,000 enterprises, Concur covers almost all of SAP's 25 industries. In Jun 2012, Concur received a 15-year contract to supply T&E software to multiple federal agencies and SAP intends to expand this relationship across the globe with other governments and agencies, thereby broadening its presence and scope of operations.
Conclusion
On completion, this deal is expected to shape one of the largest business networks. Moreover, the combined resources are expected to generate transaction volumes of more than $600 billion annually.
Concur currently has a Zacks Rank #3 (Hold). Some better-ranked companies in the computer software sector worth considering include Aspen Technology, Inc. (AZPN) and Park City Group Inc. (PCYG). Both carry a Zacks Rank #1 (Strong Buy).
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