• October 8, 2007
  • By Marshall Lager, founder and managing principal, Third Idea Consulting; contributor, CRM magazine

SAP to Acquire Business Objects

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." Related articles: SAP's Big Move Toward Smaller Businesses The German giant's "A1S" product -- officially known as SAP Business ByDesign -- targets companies with between 100 and 500 employees. SAP: Boosting Its CPM Credentials [May 2007] SAP will buy OutlookSoft, putting more analytics tools into the hands of CFOs; the acquisition continues a consolidation war with Oracle. SAP Zeroes In On the Contact Center With M&A [May 2007] The company acquires Finland's Wicom Communications; expect to see more large CRM firms buying contact center companies down the pike, according to one analyst. SAP Acquires Pilot Software [Feb. 2007] The German software giant purchases the management software provider to make good on its promise to embed more analytics in its offerings; more acquisitions will follow, according to the CEO. SAP Will Acquire Khimetrics [Nov. 2005] Consolidation continues as SAP strengthens its position in retail, finance, and consumer goods with the purchase of the demand management software developer. SAP Updates Its Midmarket Strategy A new version of SAP All-in-One addresses an increasingly important customer segment; an analyst questions value of "simplified" CRM. Business Objects Makes Baby's First BI Business Objects announces its plan to dip into the midmarket with a product line targeted at helping SMBs begin their first BI intitiatives. SAP Loses Visionary Agassi Over CEO Rift [June 2007] One analyst says that Agassi was "a charismatic and highly visible driving force for change." Feature: The 2007 Market Awards: Data Quality Data quality applications are making a major transition: from departmentalized point solutions to enterprisewide tools; Business Objects' Firstlogic is named a Leader. Feature: The 2007 Market Awards: Business Intelligence As the market for business intelligence matures and users become more sophisticated, more companies are buying into BI; Business Objects is named a Leader. Business Objects Will Acquire Inxight and Align with IBM The BI provider will now supply customers with enhanced search capabilities for unstructured data; an alliance with IBM will help tap the Asia Pacific market. Business Objects Plans to Acquire Firstlogic An industry analyst says the move validates data quality's role in BI, and makes more sense than the purchase attempt of Firstlogic by Pitney Bowes. Oracle Is Set to Purchase Hyperion The $3.3 billion acquisition would be Oracle's largest since Siebel, and continues Oracle's focus on BI while undermining rivals; more BI acquisitions are to come, according to analysts. Cognos To Purchase Applix The $339 million acquisition is the latest example of the convergence of business intelligence and performance management. Business Objects Leads the Pack in BI ROI An evaluation observes that standardization is growing as a trend, but that dashboards are driving BI adoption.
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