By Kenneth Wong and Dina Bass - 2012-05-23T16:40:46Z

SAP AG (SAP), largest maker of enterprise- applications software, agreed to buy Ariba Inc. (ARBA) for $4.3 billion in the German company's second multi-billion purchase in cloud computing to take on Oracle Corp. (ORCL)

SAP will pay $45 a share, or 20 percent more than Ariba's May 21 closing price, Walldorf, Germany-based SAP said yesterday. The transaction, subject to approval by Ariba shareholders and regulators, will probably be completed by the end of August, SAP Chief Financial Officer Werner Brandt said on a conference call.

Ariba is the leader in cloud-based collaborative commerce applications, counting BHP Billiton Ltd. (BHP) and Deutsche Bank AG among customers it connects to more than 730,000 suppliers. As competition in on-demand software intensifies, SAP has increased its pace of acquisitions, last buying SuccessFactors Inc. in December. With businesses increasingly choosing to store and process data on the Web, SAP is shifting many of its staple applications to the Internet.

"We don't have the DNA in the cloud," SAP co-Chief Executive Officer Bill McDermott said in an interview. "We're probably the most strategic cloud player in the enterprise software industry."

SAP fell 0.9 percent to 47.38 euros at the close of trading in Frankfurt, paring the stock's increase this year to 16 percent. Ariba slipped 0.1 percent to $44.82 at 12:01 p.m. in New York, after jumping 19 percent yesterday.

Earnings Growth

In more than 60 enterprise software takeovers since 2002, the median multiple buyers paid was about 16 times earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg. That compares with the 106 times trailing 12-month Ebitda SAP has offered for Ariba, the data show.

Sunnyvale, California-based Ariba's Ebitda is projected to more than quadruple to $125 million in the 12 months through September, according to analyst estimates compiled by Bloomberg.

SAP's acquisition of Ariba would be the largest enterprise software deal since Hewlett-Packard Co. (HPQ) bought Autonomy Corp. for more than $10 billion last year, according to data compiled by Bloomberg. There have been almost 1,200 of those transactions globally over the past decade, with a value topping $80 billion.

Counterbid?

"There's potential for other bidders to emerge," said Richard Williams, an analyst at Cross Research in Livingston, New Jersey, who has a hold rating on SAP. "There's a history of bidding wars between SAP and Oracle and this is exactly the kind of strategic company that would spark something like that."

Deborah Hellinger, a spokeswoman for Redwood City, California-based Oracle, declined to comment.

Oracle separately said today it agreed to buy Vitrue, a provider of cloud-based social marketing applications. Financial details weren't disclosed.

Ariba's global trading network connects and automates more than $319 billion in commercial transactions, collaborations, and intelligence among companies, according to SAP's statement. SAP's tools mostly serve internal business processes, and Ariba would give the German company a way to automate business transactions with outside companies and make it a stronger competitor in cloud-based business networks, Williams said.

The deal will add to SAP's profit, excluding some items, in 2013, Brandt said yesterday. Ariba CEO Robert Calderoni will join SAP's global management board.

SuccessFactors Takeover

SAP bought SuccessFactors in December 2011 for $3.4 billion, adding a maker of online personnel-management applications to help it enter the cloud-computing market. SAP is now offering its payroll, supply-chain management and financial software as cloud applications through the Internet.

The market for cloud software delivered via the Web will grow five times as quickly as sales of programs installed on clients' premises, according to researcher IDC. SAP plans to generate 2 billion euros ($2.5 billion) from such systems by 2015 to help it reach a sales target of more than 20 billion euros by that year.

While Oracle has snapped up rivals, SAP had traditionally shied away from large deals, with past CEO Leo Apotheker telling investors in 2009 that the company's home-grown software was superior to Oracle's. McDermott and co-CEO Jim Hagemann Snabe have changed that strategy as they race to snatch business from Oracle and other companies such as Salesforce.com Inc. (CRM) and Workday Inc. in the cloud.

Hana Analytics

SAP bought Sybase Inc. for $5.8 billion in 2010 to bolster its database and mobile-computing offerings. It has also introduced a data-processing system called Hana, which competes with Oracle in database software.

This year, Oracle has purchased human-resources software maker Taleo Corp., a counterweight to SAP's acquisition of SuccessFactors, and customer-service cloud-software vendor RightNow Technologies Inc.

Ariba reported $444 million in revenue last year, an increase of 39 percent from a year earlier. The U.S. company's board has unanimously approved the deal, SAP said in the statement. SAP plans to fund the transaction with its own cash and a 2.4 billion-euro term loan facility, the company said.

At today's annual shareholder meeting in Mannheim, Germany, some SAP investors say the company may be paying too much. "We don't know whether Ariba can generate the profits that would justify the high price," Jella Benner-Heinacher, managing director of the German Association for the Protection of Wertpapierbesitz, said in an interview.

Ariba held its initial public offering in June 1999 and was one of darlings of the Internet bubble, seeing its stock more than quadruple in its first two months of trading. The shares plummeted about 90 percent in 2001.

JPMorgan Chase & Co. and Deutsche Bank AG advised SAP on the deal, while Morgan Stanley provided financial counsel to Ariba.

To contact the reporters on this story: Kenneth Wong in Berlin at kwong11@bloomberg.net; Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net