The friendly takeover folds new business intelligence capabilities into one of the leading enterprise software platforms; amidst differing opinions, rumors loom of a counteroffer from Oracle or IBM.
Posted Oct 8, 2007
Early this morning, enterprise software titan SAP announced it had reached an agreement with Business Objects to acquire the business intelligence (BI) and analytics powerhouse in a friendly takeover. The deal, valued at 4.6 billion euro, or $6.78 billion, is the largest in SAP's 35-year history.
Should stockholders approve the bid, Germany-based SAP and France-based Business Objects plan to offer applications that combine SAP's grasp of enterprise computing with the business process strengths of Business Objects. The solutions will be designed to enable users to strengthen decision processes, increase customer value, and create sustainable competitive advantage through real-time, multidimensional business intelligence, according to the companies. SAP and Business Objects believe that customers will gain significant business benefits through the combination of enterprisewide business intelligence and embedded analytics in transactional applications.
"We are highly committed to the next generation of applications serving business users," said Henning Kagermann, chairman and chief executive officer of SAP, in a statement. "The combination of SAP and Business Objects in their respective domains will benefit customers, prospects, partners, employees, and shareholders. At SAP, we are excited about the prospect of having Business Objects join the SAP Group."
The French company mirrored the enthusiasm of its prospective new owner. "Business Objects helps companies transform the way they work through the use of intelligent information," said Bernard Liautaud, chairman and founder of Business Objects, in a statement. "The combination of Business Objects and SAP means that we can truly amplify the reach of Business Intelligence -- from the C-suite to Main Street."
In the analyst world, opinions about the proposed acquisition are flying wild. Two key aspects were made clear by the announcement, according to Ray Wang, senior analyst for enterprise applications at Forrester Research, who described the bid as "a not-so-surprise move to insiders." (The notion that Business Objects was in play had been public knowledge for at least two weeks, since a French newspaper reported that the company had engaged Goldman Sachs to seek out potential bidders.)
First, organic growth is not sufficient to meet SAP's stated goals. "Despite great success with organic growth, Oracle's acquisition strategy is making a dent," Wang wrote on his blog, The Software Insiders Point of View. "Henning Kagermann's quote from the press release says it all. 'The acquisition of Business Objects is in keeping with SAP's stated strategy to double our addressable market by 2010 as announced in 2005,' said Kagermann. 'SAP will accelerate its growth in the business user segment, while complementing the company's successful organic growth strategy.' What kind of acquisitions will SAP make to meet this self-imposed target?"
Second, SAP evaluated Business Objects for more than just BI, according to Wang. "After Oracle's takeover of Hyperion, SAP evaluated the impact to its overall solution-centric ecosystem," he writes. "Business Objects' strong partner ecosystem played a key role in choosing Business Objects. It seems likely that Business Objects users may be forced onto NetWeaver in the long run."
"The Business Objects acquisition will bring both data-extraction capabilities and market-leading, front-end, query-and-reporting tools, complementing parts of the NetWeaver BI stack," said David Bradshaw, principal analyst at Ovum, part of the Datamonitor Group. However, he adds, there are large areas of overlap between the product sets, and he expects any subsequent integration plans to detail the product roadmap moving forward. "How well [SAP] can carry on 'playing nicely' with competing BI vendors after it acquires Business Objects remains to be seen, but we think it will have no choice but to try."
Financial analysts were split. "SAP's move to acquire Business Objects for $6.8B validates Oracle's consolidation strategy," said Jason Maynard, software analyst for Credit Suisse "It will be interesting if this leads to even more SAP deals despite [its] longstanding assertion that Oracle's approach was flawed." Ioannis Pappassavvas, a fund manager ar Allianz Global Investors, took a more negative view. "It's the U-turn strategy,'' he was quoted in Bloomberg Financial News' report on the takeover. "They made the acquisition to cover the possible incompetence to increase earnings next year. They're also overpaying."
Additionally, Credit Suisse wondered about other partners of each company and where they fit into the deal. "The SAP/Microsoft partnership seems to have fallen apart as the two companies appear to be on a competitive collision course," Maynard said. "The sum total of the [Business Objects] announcement, the midmarket push with [SAP's recently announced midmarket solution] Business ByDesign, and [SAP's May 2007] OutlookSoft acquisition makes partnering complicated."
Maynard also wondered if IBM, a longtime Business Objects partner, had been a competitive bidder. "Our best guess is that IBM or HP was in the bidding process," he said. "If IBM was a serious player it could mark a major change in [its] strategy or an appetite for larger deals.... We think the bold long-term move for IBM is to step up to the plate and buy SAP otherwise they stand to become a less relevant player in the software market."
Wang expects the BI market to heat up following this announcement. "BI remains one of the hottest areas of growth as users struggle to get information out of existing legacy packaged apps," he writes. "As we move to a full Y2K replacement cycle, smart companies begin the discussion with their BI strategy then with upgrade."
Wang advises watchers to expect the following:
- More BI market consolidation. Oracle's March 2007 acquisition of Hyperion marked the start of the consolidation cycle. Pressure will mount on the dwindling number of independent BI vendors, with Cognos the obvious next target. (IBM, HP, and Oracle could be potential suitors.)
- A hostile counteroffer. The $6.8 billion valuation for Business Objects may be less than what other vendors had anticipated. The Oracle/Hyperion deal ($3.3 billion) seemed quite high and previous industry murmurings had Business Objects and Cognos valued north of $7 billion. Deep-pocket vendors such as IBM, Oracle, and HP could start a bidding war.
- Something more than organic growth for this market. After years of pursuing an organic strategy, even SAP realizes the need for strong acquisition skills.
"Each technology era and segment has had dominant acquires," Wang writes. "Think of IBM, CA, Microsoft, Oracle, and Google. One may expect other vendors to reconsider their strategies."
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