Despite Negative Reaction, Goldman Sachs Remains Positive on SAP (SAP) Following Concur (CNQR) Deal

Goldman Sachs maintained a Conviction Buy on SAP AG (NYSE: SAP). Comments follow news its plans to acquire Concur Technologies, Inc. (NASDAQ: CNQR). In the view of analyst Mohammed Moawalla, the market may react negatively initially, but overall he remains positive, and he sees a rapid unlock of synergies.

"From a strategic standpoint, the acquisition would provide significant opportunity for cross-selling Concur T&E products into SAP’s large installed base, the vast majority of whom don’t currently use this product. Furthermore, c.84% of CNQR’s business is currently concentrated in the US and would provide SAP the opportunity to grow it in Latin America, Asia and Europe. SAP also believes that Concur complements its Ariba and recently acquired Fieldglass assets in building a business network both within and across companies across the areas of procurement of goods and services, managing contingent workforces and travel & expense, driving synergies," said Moawalla.

"We expect SAP shares to react negatively initially as the market digests the size of the proposed acquisition. Note SAP paid 8x and 7x forward EV/Sales for SuccessFactors and Ariba. We note our US analyst Greg Dunham’s CNQR model sees organic revenue growth slowing from 24% in CY14E to 17% in CY16E. Therefore, in our view rapid unlocking of revenue synergies through cross and upselling is essential to reaccelerate growth, as well as driving profitability by scaling the network, would be key in generating value out of this acquisition. If CNQR’s growth doesn’t accelerate, it would dilute SAP’s cloud organic revenue growth and bookings which has been in the 30%+ range over the last 3 quarters. We believe there are still gaps in the cloud portfolio such as marketing automation that need to be addressed," he added.

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Shares of SAP AG closed at $77.35 yesterday.

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