Yesterday afternoon, global software provider SAP AG (NYSE Ticker – SAP) announced its intent to purchase Seattle-based travel, expense and invoice management solution provider Concur (Nasdaq Ticker – CNQR) for approximately $8.3 billion (based upon the announced acquisition price of $129 per share). The agreement signals another major shockwave in the global enterprise solutions industry that follows on the heels of SAP’s 2012 acquisitions of both SuccessFactors and Ariba (click here to read our analysis of the Ariba deal) and its deal this year to buy Fieldglass (click here to read our analysis of the Fieldglass deal), all of which have greatly-contributed to SAP’s global reach across a multitude of spend areas, categories, and business functions.

Deal Background: Some “feelers” were leaked earlier this month in the news regarding Concur’s interest in being sold to a global provider, such as Oracle, SAP or Microsoft, and yesterday’s news obviously proved that Concur’s board of directors was quite serious about shopping itself to a larger buyer. According to Bill McDermott, SAP’s CEO, the deal will is expected to close sometime in either Q4 of this year or Q1 of 2015, pending stockholder and regulatory approval.

An interesting side story is that American Express, with its own array of financial services offerings, will also benefit from the acquisition, as it owns roughly 15% of Concur from a strategic investment made back in the summer of 2008. AMEX’ investment in Concur was a shade more than $250 million and priced at $39 and change per Concur share which means that AMEX more than tripled its money in six years time. The investment was made in parallel with a new marketing agreement whereby AMEX salespeople exclusively sold Concur solutions (and stopped selling IBM’s expense management solution). This investment and agreement have been a major, if not the major, driver of Concur’s growth over the last few years.

Deal Analysis: There are several angles from which to view this acquisition. The growing travel spend market (which SAP estimates to be $1.2 trillion on a global level) has been Concur’s sweet spot for nearly two decades particularly expense management. In point of fact, Concur absolutely dominates the expense management space, so much so that it has been looking to invest in different solution areas (like ePayables) so that it can maintain is strong growth numbers. The travel and expense management space is an area that SAP tried to enter with its On-Demand offering a few years ago, but was ultimately unable to gain any real traction. As the largest “pure-play” provider in this space, SAP’s offer to buy Concur is similar to the deals struck with Ariba (the largest supply management pure-play) and Fieldglass (one of the largest pure-plays in the Vendor Management System (VMS) / contingent workforce arena).

With this deal, SAP shows, once again, that it is not afraid to pay ‘full price’ on companies that have cloud-based solutions that fill out its solution footprint. The acquisition price indicates that SAP believes that it can unlock pent-up demand in its core customer base much in the same way that it has done with Ariba (whose 2013 sales numbers which were not reported, but were rumored to have beaten most internal company estimates).

Concur’s mobile solutions and its platform/network structure provide unique capabilities that could potentially be scaled across other SAP solution areas. It will be interesting to see if and how SAP attempts to combine the Concur network and infrastructure with its business (i.e. Ariba) network and how it tracks and accounts for the transaction volumes of its clients.

Interesting too will be what happens with Concur’s ecosystem of partners which include American Express, ADP, Salesforce.com. While we expect that Concur’s relationships with all of the TMCs (travel management companies) and other travel companies, travel suppliers, card companies, technology partners, and many others (this lists are far too numerous to mention here) will remain largely unchanged, it is not clear if SAP’s partnerships with direct competitors will be an issue or if the fact that SAP, itself is a direct competitor will become one (i.e. Concurforce Salesforce.com).

Another interesting question (and there are many) to consider is how will Oracle respond? We expected, and frankly, recommended that Oracle throw its hat in the ring and make a bid for Ariba. They did not. We do not expect Oracle to make a counter bid since it surely had an opportunity to express an interest and make a bid when Concur was being shopped these past few weeks.

Since Concur is dominant in its market, we expect this deal will attract scrutiny from regulators, but we expect it will pass since the incremental market share held by SAP (and Ariba) today in Concur’s core business of expense management is very small and does not shift or change market dynamics.

Ardent’s Analysis:

In looking at this acquisition from a supply management perspective, it is clear that SAP will enhance their offerings in light of the evolving convergence between procurement and business travel management. According to Ardent Partners research, over half (52%) of procurement executives cite business travel as one of their top areas of cross-functional coordination (second only to supply risk management). This growing convergence (finance / shared services holding day-to-day management of business travel and related expenses, procurement handling strategic sourcing, supplier management and spend management) supports an acquisition of this significant scale, as SAP users will be able to blend its business network capabilities with Concur’s market-setting travel-booking and expense management functionality.

Business travel is perhaps (next to temporary / contingent labor) the largest of the complex spend categories, and the enhancements to SAP’s platform via the acquisition of Concur will allow procurement executives (and the Chief Procurement Officer) to gain better control over the business travel category from cost, savings, compliance and control standpoints.

While already a leader in the global B2B commerce marketplace, SAP enhances its function (or business process) specific advantages, adding to its array of solutions for financial management, human capital management, procurement / supply management, etc. Over the past few years, Concur has touted an “open integration” concept by opening the solution to developers and other technologies to fuse nuanced business travel / expense management applications and portals with its broader travel and expense management capabilities. In recent months, Concur has made a point to embrace innovative business traveler apps, such as Airbnb and Uber, to appeal to both the core business traveler and the enterprises they represent.

SAP’s acquisition of Concur signals the provider’s aggressive approach towards becoming the preeminent, global source of B2B technology and commerce. Much like the solution’s acquisition of Fieldglass earlier this year, SAP has planted its cloud-based stake firmly in the ground of yet another evolving, high-value spend arena that is critical to the contemporary enterprise.

For the past few years, Concur executives have promoted the concept of what they call the “Perfect Trip” which is an idealized vision of the world where business travel is a seamless experience, a perfect experience (similar in many ways to the Supply Chain’s “Perfect Order”). It would seem that Concur’s executives and employees have found their own ‘perfect trip’ – one that ends in Waldorf, Germany.

Disclosures: SAP and Concur are clients of Ardent Partners. The authors hold no financial investments in any company mentioned in this article.

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