This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Cloud Premiums Fall in SAP's $4.3B Deal for Ariba

Late in 2011, SAP and IBM both paid over 50% premiums to buy up cloud businesses like SuccessFactors (SFSF) and DemandTec, respectively, fanning speculation of a M&A boom for cloud assets.

However, after those deals some analysts cautioned that premiums for cloud companies were set to fall as competition intensified. For some, Oracle's February acquisition of cloud-based HR management systems provider Taleo (TLEO) at a sub-20% premium solidified the notion that competition in the sector was ratcheting up and premiums were falling.

"[T]he decisions by RightNow, SFSF, and Taleo to sell may have been motivated by a belief that either their product reach was too narrow, too highly penetrated and that the cost of building an integrated suite was simply too high," wrote BMO Capital Markets analyst Karl Keirstead in a February note reacting to Oracle's acquisition.

Ariba, which saw revenue grow 38.5% in 2011 to $444 million may be a further signal of the notion, as M&A expectations continue to drive share valuations.

Cloud-focused IT and business services companies as large as (CRM) and NetSuite (N), and as specialized as Kenexa (KNXA), Saba Software (SABA) and Cornerstone OnDemand (CSOD) were relatively unchanged on news of SAP's Tuesday acquisition.

BMC Software (BMC), a business IT software and hardware services specialist was also little changed in Tuesday trading, even after activist fund Elliott Associates took a 5.45% stake in the company in May and asked that it consider M&A bids from strategic buyers and private equity firms that would realize the value of its cloud assets.

Still there is no shortage of M&A expectations for companies with cloud and SaaS assets ranging from HR services, supplier procurement and sales leads to virtual data management. Ariba competitors Concur Technologies (CNQR) and supply chain specialist SciQuest (SCI) rose over 3% in late Tuesday trading.

"The recent M&A activity in the Cloud/SaaS sector is being driven by a seismic shift to cloud computing, in our opinion," wrote Jeffrey Houston of Barrington Research in a Jan. 23 note on M&A expectations for the sector. "We are roughly 10 years into this shift, which should last another 10-20 years," the analyst added. He recommended SPS Commerce (SPSC) and RealPage (RP) as attractively priced.

-- Written by Antoine Gara in New York.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
SAP $73.68 0.00%
AAPL $93.99 0.00%
FB $102.01 0.00%
GOOG $682.40 0.00%
TSLA $151.04 0.00%


Chart of I:DJI
DOW 15,973.84 +313.66 2.00%
S&P 500 1,864.78 +35.70 1.95%
NASDAQ 4,337.5120 +70.6750 1.66%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs