Flying in the Cloud Makes Concur Enticing Bait: Real M&ATara Lachapelle
As Concur Technologies Inc. shops itself, SAP SE or Priceline Group Inc. may find they can justify the high price.
Concur, the $6 billion company that Bloomberg News reported is exploring a sale, would be one of the most expensive software acquisition targets of the past five years. It would let a buyer such as SAP, which has stagnating growth, grab hold of an expanding cloud-software business that manages corporate travel and expenses for 23,000 customers, including Google Inc.
Price wasn’t an obstacle for SAP in 2012 when it paid an even higher valuation for SuccessFactors Inc., another cloud company. Software makers have been on a takeover spree for cloud-based offerings as sales of traditional products decline. Other logical suitors for Concur may be Priceline, Workday Inc. or Salesforce.com Inc., according to analysts from Robert W. Baird & Co. and Stifel Financial Corp.
“Enterprise software is so sticky; once you sign up a customer you typically keep that customer for upwards of a decade and they’re typically very valuable,” Brad Reback, an Atlanta-based analyst for Stifel, said in a phone interview. “That’s why the big guys with all the cash flow can effectively pay what seem to be big multiples but make very profitable transactions.”
Concur could be bought for about $130 a share, 22 percent higher than the stock’s closing level yesterday, estimates Steven Ashley, a Milwaukee-based analyst for Baird. That would value Concur at $7.3 billion after subtracting net cash. An all-cash offer at that price may be accretive for either Priceline or Salesforce next year, before accounting for any possible cost savings, data compiled by Bloomberg show.
Danielle Adams, a spokeswoman for Bellevue, Washington-based Concur, didn’t respond to a phone call or e-mail seeking comment on whether the company has received interest from buyers.
Representatives for SAP, Priceline and Salesforce said their companies don’t comment on speculation, when asked whether they may bid for Concur. A representative for Workday didn’t respond to a request for comment.
Concur is working with an investment bank on a sale and has approached companies including SAP and Oracle Corp. to gauge their interest, people with knowledge of the matter said this week, asking not to be named because the information is private. Oracle decided not to pursue a transaction, one of the people said. Concur also approached Microsoft Corp., though the $373 billion software maker isn’t interested, another person said.
Two months ago, Oracle agreed to buy Micros Systems Inc. for about $5 billion to add software for hotels and restaurants.
This year’s $29 billion of Web-based software acquisitions is already a record, according to data compiled by Bloomberg. The industry’s heavyweights are scooping up targets amid a shift toward delivering software over the Internet -- or cloud -- instead of installed on clients’ servers. The shift is occurring even amid heightened concern over cybersecurity breaches after several hacking incidents at large companies.
“There’s no debate anymore in the IT industry that the cloud will be the preferred consumption model,” Bernd Leukert, SAP’s new software chief, said in an interview last month at the company’s headquarters in Walldorf, Germany.
Concur’s software can book flights and submit or approve expenses on the Internet or mobile devices. It’s used by corporations such as Google, Kellogg Co., Hess Corp. and Elizabeth Arden Inc., according to the company’s website.
There’s still room to grow its client base because the total addressable market comprises more than 300,000 potential customers compared with Concur’s current 23,000, according to Brent Thill, an analyst at UBS AG.
“We have often emphasized Concur as a highly desirable M&A target,” Thill wrote in a note dated Sept. 2. It would “fit well” with a large vendor such as SAP or Oracle, the note said.
Concur’s enterprise value -- or sum of its market value, preferred equity, minority interest and net debt -- was about $6 billion yesterday. That’s about 9 times the revenue it generated in the 12 months through June, which means it stands to become one of the industry’s priciest acquisitions, according to data compiled by Bloomberg.
“The valuation is a potential issue that needs to be considered,” Jack Andrews, an analyst for D.A. Davidson & Co., said in a phone interview. “I wouldn’t view it as an inexpensive stock at this point.”
SAP paid 11 times SuccessFactors’s trailing 12-month revenue to gain software that manages employee performance. It was the highest multiple for a takeover in the U.S. software industry in the past five years, the data show.
SAP’s recent deals such as SuccessFactors imply a takeover value of about $118 a share for Concur, though it could be argued that Concur is a stronger franchise and should fetch $130 a share, said Ashley of Baird. The stock closed at $106.18 yesterday, after the Bloomberg News story sparked a 5.2 percent gain this week.
Today, they climbed 2.4 percent to $108.76.
Priceline, whose websites allow users to book vacations, could buy Concur to get an entry into the corporate travel market, said Stifel’s Reback. It acquired OpenTable Inc. this year for $2.5 billion, or almost 13 times revenue, to add a restaurant-booking service. While that deal just closed in July, Priceline still has cash leftover and with a market value of $64 billion, is 10 times the size of Concur.
Salesforce and Workday, which both make Web-based enterprise software, are other possible buyers for Concur, Ashley of Baird said. Salesforce, valued at $37 billion, is the largest maker of customer-management software and has built its business around cloud computing. Workday, valued at $16 billion, makes applications to help corporations manage human resources and financial records.
With Concur growing more than 20 percent a year, it begs the question: why sell now? It could be because the company wants to continue investing heavily in its growth, which puts pressure on profit margins, said Andrews of D.A. Davidson. Its operating-profit margin topped 20 percent in fiscal 2010, versus the 10 percent analysts are predicting for the current year, data compiled by Bloomberg show.
“The payoff period for those investments is not immediate; it’s several years into the future,” he said. “So one thought is that management might view it as better off making those investments under the umbrella of another large company, rather than being in the spotlight of quarterly reported earnings.”
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