Ariba Sells Sourcing Services, BPO Businesses to Accenture

In a surprise move, Ariba announced this morning that they were selling their sourcing services and BPO businesses to Accenture. At the time of the announcement, it was not clear whether all of these assets would end up with Accenture's BPO group or their consultancy organization (within Accenture, unlike other large hybrid consulting/BPO organizations, the lines between the divisions are somewhat blurry). According to the announcement, "upon the closing of the acquisition, Accenture will take ownership of these assets, which include Ariba's category expertise, sourcing process expertise and strategic sourcing execution resources, strengthening Accenture's position as a leading provider of sourcing and procurement consulting and outsourcing services."

The company press release suggests "approximately 160 Ariba employees are expected to join Accenture upon the closing of the transaction." The deal is not yet closed, but Ariba forecasts closing by the end of the December quarter. Accenture is buying these assets for $39 million up-front, with an additional "$12 million of which is subject to escrow to be released based on the assignment and performance of certain assets." The earn-out that is part of this agreement will no-doubt incent Ariba to refer services business to Accenture, potentially at the expense of other services partners.

In a letter to Ariba employees this morning, Bob Calderoni told his staff that "As you all know, Ariba has its sights set on a lofty goal: to become the leading platform for business-to-business commerce. And in order to do this, we must focus on developing and delivering on-demand solutions that enable companies to buy, sell and manage their cash more efficiently and effectively. In support of this vision and mission, we have made a strategic decision to sell our sourcing services and business process outsourcing (BPO) business to Accenture, one of the world's largest and most successful management consulting, technology services and outsourcing companies."

Bob continues: "Under the terms of a definitive agreement announced this morning, Accenture will take ownership of Ariba's sourcing services business ... Our customers will continue to receive the services they have contracted for and will benefit from Accenture's deep expertise and extended global reach. In addition, Ariba will provide access to Accenture's services through the Ariba Commerce Cloud, enabling companies seeking additional resources and expertise to support their strategic sourcing efforts to tap them as needed."

Bob suggests that strategically, "Divesting this portion of our business and expanding our partner ecosystem to include world-class companies like Accenture will allow us to focus on what we at Ariba do best: developing and delivering network-based solutions that enable companies to lower costs, minimize risk and optimize performance and cash flow. It will also help in the execution of our strategy, by providing additional cash to support and accelerate the growth of our business."

In a note to financial analysts this morning, Ariba also suggested that "We will retain Services tied to our technology and adoption. Specifically, on demand set-up, adoption/value enablement services and upgrade implementation work in relation to our old CD offering."

In a column earlier this year, Spend Matters suggested that Ariba should divest or split apart its businesses into three groups, including its services and consulting arm. In this op-ed, I wrote that "the second P&L and ultimately, company, I would create would be focused entirely on services and content. Given how Ariba has not fully taken advantage of much of the original FreeMarkets services customer base which it could have parlayed into new revenue streams at a time when many competitors have seen double-digit services growth year over year, it's clear that opportunity still knocks in this space and the challenge for Ariba when it comes to maintaining -- let alone building -- a services P&L has been one of execution. With the assets of the Ariba GSO (formerly FreeMarkets) delivery organization combined with other productized services lines and more custom oriented work -- and the freedom to deliver objective advice on systems and process architecture separate from Ariba software -- I believe this group could rapidly become more competitive."'

Stay tuned for further analysis of the story throughout the day. Our initial take is that this transaction can be positive for both Ariba and Accenture. We'll leave the valuation and accretion/dilution analysis to the sell-side guys to give us their take on later today, but from a customer perspective, it looks like this deal could be a win / win based on the successful outcomes of the post acquisition / merger integration work by Accenture and Ariba's internal ability to refocus on what it does best -- not to mention starting to rebuild a previously broken partner ecosystem.

- Jason Busch