RealTime IT News

Ariba Pays $493M for FreeMarkets

Purchasing software maker Ariba will pony up $493 million in cash and stock for supply management services firm FreeMarkets .

The deal gives the merged company a more complete offering to woo enterprise customers who want to automate some of their purchasing.

Ariba and FreeMarkets logged approximately $52 million and $37 million, respectively, during the fourth quarter of 2004. Together, financial officers say the two companies will do about $360 million in annualized revenue.

Most of the upper management jobs from both companies will be retained, as well as most of the revenue-producing divisions in the middle management and ground-level positions, said Michael Schmitt, executive vice president and chief marketing officer for Sunnyvale, Calif.-based Ariba.

Dave McCormick, president and CEO of Pittsburgh-based FreeMarkets will join Ariba's board of directors and become the merged company's president. Ariba President and CEO Bob Calderoni will become the company's CEO and chairman.

Current customers will retain their same service and software agreements, until the technologies, and companies, are finished merging in June, he said.

When the transaction is complete, FreeMarkets shareholders will get 28 percent ownership in the new company and $2 cash for each share they had invested in FreeMarkets. Ariba, of Sunnyvale, Calif., is also looking to get approval for a 1-for-5 or 1-for-6 reverse stock split.

Schmitt said FreeMarkets is a good fit for Ariba, bringing domain expertise in a wide variety of industries to its spend management software package.

"The merger gives us the ability to have domain experts who do nothing but track specific supply markets, both in the U.S. as well as internationally, and bring the knowledge to bear with our software," he told internetnews.com.

This is the second acquisition for Ariba this month. Earlier, the company acquired Alliente, a managed procurement services provider.

The acquisition gave Ariba another component to deliver in its spend management software suite, which analyzes and streamlines product buy/sell processes within an organization. Alliente's outsourcing services focused on the indirect supplies bought within an organization, from the paper clips to the toner cartridges, that affect a company's bottom line but isn't directly associated with the product for sale within a company.

By grabbing up Alliente's services component, Ariba added a lucrative new service to its existing client base, which includes FedEx, E*Trade, Hewlett-Packard and Southwest Airlines.