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SAP's $7.3 Billion Cloudy Investment

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Merger in the clouds.
  • Why it matters

    Why it matters

    SAP needs to expand in the cloud-computing market or risk becoming irrelevant as ever more companies and consumers turn to real-time, Internet-based software.

  • Facts

    Facts

    • SAP has bought at least four other firms since 2010 to expand its cloud-based software products.
    • SAP shares fell more than 2 percent on the announcement as investors feared they overpaid for Concur Technologies.
    • Concur, based in Bellevue, Washington, lost more than $30 million in fiscal 2012 and 2013.
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    Audio

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SAP, the world’s largest maker of business software, said it will spend $7.3 billion (€5.6 billion) to buy a U.S. maker of cloud-computing software, in its biggest ever wager on the web-based delivery of remote computing services.

Bill McDermott, the SAP co-chief executive since 2010 and its sole leader since May, has focused on expanding cloud-computing services at SAP, which originally designed, installed and maintained its own complex computing systems at companies around the world.

But with the advent of cloud computing, where number-crunching is done by vast farms of computer servers often located on the other side of the world, SAP has been forced to revamp its basic business model, delivering service and deriving profit from remote computing.

With its purchase of Concur Technologies, a company based in Bellevue, Washington, which makes software that helps corporate employees get reimbursed for business travel expenses, SAP sent a resounding message, analysts said, that it would retool for the cloud-computing era.

But its shares fell more than 2 percent in Frankfurt trading on Friday as some investors were concerned that SAP had spent too much to acquire Concur, which lost $24.4 million in the fiscal year 2013, following a $7 million loss the year before.

“We believe the acquisition of Concur is a reasonable expansion of SAP’s cloud offering,” Knut Woller, an analyst at Baader Bank in Frankfurt, wrote in a note to clients. “However, SAP is paying a relatively high multiple for Concur in our view.”

The purchase of Concur was SAP’s largest since its 2008 purchase of Business Objects, a French software maker, for $6.7 billion at the time.

Cloud computing is seen as a boom market, as consumers access Internet services via their mobile phones and companies want real-time access to data and analytic capabilities without having to spend lots of money on their own computer infrastructure or programs.

Global business spending on cloud services and products will reach $174.2 billion this year, up 20 percent from last year, research firm IHS estimated in February. By 2017, spending is expected to have risen to $235.1 billion, IHS said.

SAP is striving to maintain its global market lead in business software as rivals such as Amazon, Google, IBM and Oracle muscle in, offering their own cloud computing services to companies and governments.

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