Technology outsourcing and consulting major Accenture Inc. (ACN) recently announced its intention to acquire the sourcing services and business process outsourcing (BPO) services business of Ariba Inc. (ARBA) for a total consideration of $51.0 million. The acquisition is expected to close by the end of December 2010.
 
Ariba is the leading provider of cloud-based business commerce software, which facilitates organizations to manage costs, minimize risk, improve profits and enhance cash flows and operations. Ariba’s Commerce Cloud helps organizations to mitigate the complexities regarding buying and selling activities and managing cash. Ariba’s sourcing services, a subscription-based solution for buyers, helps to improve the complete sourcing lifecycle –– from supplier discovery and proper negotiations to optimize savings.
 
Under the terms of the agreement, Accenture will own Ariba’s category expertise, sourcing process expertise and strategic sourcing execution resources. With this acquisition, Accenture will be able to enhance its sourcing and procurement consulting as well as outsourcing services.
 
Accenture will absorb 160 Ariba employees and sign a four-year, non-compete agreement with the latter. We think that the acquisition would be accretive to Accenture’s earnings in the near term, as Ariba’s businesses will generate $40.0 million of revenues in 2010 and earnings of 7 cents per share.
 
We believe that Ariba’s expertise will enhance the existing level of Accenture’s consulting and outsourcing services, thereby increasing customer demand, which has also recently been noticed in the fourth quarter results.
 
Accenture posted encouraging fourth quarter results having beaten the Zacks Estimate and registered solid bookings. Moreover, we are encouraged by the steady flow of new business driven by tech spend in 2010. However, we prefer to take a cautious stance until revenue growth shows a more sustained momentum.
 
We currently have a short-term Buy recommendation on Accenture, implying a Zacks #2 Rank.
 
ACCENTURE PLC (ACN): Free Stock Analysis Report
 
ARIBA INC (ARBA): Free Stock Analysis Report
 
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