Ariba scouts abroad to expand network business

BANGALORE: Ariba Inc , a supply-management software maker, plans to expand internationally by buying small companies to help build its fast-growing network business and move into new markets.

"You will see us do more international acquisitions," Chief Financial Officer Ahmed Rubaie told Reuters. "The balance is shifting more towards international revenue over North American domestic revenue, so, they would likely be in emerging markets."

International business already brings in around 40 percent of Ariba's revenue -- from Europe, Australia, Africa, the Middle East and Asia. Total revenue last year was $361 million.

In January, Sunnyvale, California-based Ariba bought privately-held Dutch rival Quadrem for about $150 million in cash and stock.

Rubaie cited Basware, OB10 and Hubwoo SA as examples of the kind of companies Ariba was scouting for -- similar to Quadrem, but maybe in different parts of the market or the world -- though he said these were not necessarily targets.

"The revenue for most of these ... is around $40-$70 million," he said. "I'll leave it to your imagination about what we might pay for them."

Debt-free Ariba has cash and cash equivalents of about $200 million.

Shares in Ariba, valued at around $2.37 billion, have dropped by more than a third since hitting a 9-1/2-year high on July 11. The S&P systems software sub-index is down nearly 17 percent over the same period.

NETWORK GROWTH

Rubaie said about 90 percent of its deals are likely to be in the network business.

The Ariba Network is the world's largest trading partner community, with around 500,000 businesses trading goods and services worth some $193 billion. The platform supports business-to-business commerce needs, including e-procurement, e-invoicing and working capital management.

Rubaie expects to end fiscal 2011 with total network revenue of $120 million, which has grown from just $26 million in 2008.

"We're now getting to a point where the network revenue will very soon surpass our on-demand applications," he said.

For the first nine months of fiscal 2011, subscription software application revenue accounted for about 36 percent of Ariba's total, with the network business bringing in 25 percent.

Rubaie said Ariba is also betting on its new Discovery business to start generating significant revenue from fiscal 2013.

"It's like a dating service between buyers and suppliers," he said.

Buyers feed in their needs, and the Discovery platform automatically matches these to suppliers based on industry and location. Suppliers then put in their bids to win the business.

"We've put our first pricing test out there and will probably tweak it one or two more times until we reach equilibrium in terms of making sure we got the chicken and egg game figured out," Rubaie said.

Copyright Reuters, 2011