The news today sent Ariba's sizzling stock down 4.4 percent to 223.94 a share in afternoon trading. Atlanta-based Tradex, which is privately held, matches large numbers of buyers and sellers online, while Ariba sells software and systems that automate purchases of office equipment, maintenance supplies and services.
"The bottom line is that we're seeing that companies really aren't getting tremendous value out of automating the paper shuffling part of procurement," said Forrester Research analyst Stephen Cole. Consolidating all of the buying and procurement contracts is what will ultimately save companies money, he said.
Cole said a Tradex deal would help Ariba further shift its business model from dependence on software license sales. He argued that Ariba, whose primary competitors are Commerce One and Oracle, could also move toward a subscription-based revenue plan--under which the company will collect a transaction fee for large groups of customers that use its exchange.
A deal would also take Ariba further into vertical markets, where Tradex has thrived, analysts say. Tradex, which doesn't disclose its financials, was spun off in 1996 from hardware distributor Dynabit, which was at the time working on a project to automate transactions between its suppliers and customers. Tradex customers include American Express, which is using Tradex technology within its portal for its corporate customers, services giant EDS, and GTE.
An acquisition of Tradex would follow Ariba's purchase last month of Net trading application maker TradingDynamics, for $400 million in stock.
Ariba's plans to acquire Tradex was first reported in The Wall Street Journal. Neither Ariba or Tradex would comment on any pending deal, although a source said the acquisition is expected to be announced soon.
Joshua Greenbaum, analyst at Enterprise Application Consulting, said Ariba's key to success will be expansion and staying several steps ahead of the giant enterprise software makers such as SAP and Oracle.
"It's clear that Tradex has something to offer," he said. "They pioneered brokering community environments on the Web."
But Greenbaum questioned whether closely held Tradex is worth $1.65 billion--especially in a market that is unproven.
"Obviously, if Ariba is willing to pay upwards of a billion they're ready to gamble," he said.