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European Software Consolidation

Posted on Monday, Oct 8th 2007

SAP (Nasdaq: SAP) made an uncharacteristic move yesterday by announcing that it is acquiring French company Business Objects (Nasdaq: BOBJ) for $6.78 Billion. The $59 a share price being offered is a 20% premium over Friday’s closing price for the Business Intelligence market leader.

I had said in an earlier column, that SAP’s strategy would most likely continue to be organic growth, since the company has so far been reluctant to take on large acquisitions, even as it has had major gaps in its Enterprise and Small Medium Enterprise (SME) portfolios. Today’s move, however, is a definite departure from that path.

Business Objects, which I wrote about just a month back, has done its own set of roll-ups, and acquired French company Cartesis in June and unstructured data provider Inxight a month later. Between October and December 2006, it acquired Armstrong Laing and Nsite in quick succession, having also acquired Firstlogic earlier. In a nutshell, Business Objects has been acquiring pieces that fill gaps in their BI portfolio, especially key strategic pieces that help them address On-Demand Business Intelligence and Unstructured Data analysis. The full analysis of all these acquisitions is available here, along with links to guest posts by Aberdeen Group analyst David Hatch.

So what has changed at SAP? Business Intelligence is clearly a market in which SAP needs to be present, and market alignment wise, this is a phenomenally good strategic move. The largest previous deal was in May when Oracle agreed to buy Hyperion for $3.3 billion.

What is intriguing, however, is SAP’s evolution to get to this point where they feel comfortable going for a large acquisition.

In March 2007, Hasso Plattner’s blue-eyed boy Shai Agassi left abruptly. Shai was widely believed to be the heir apparent at SAP. Henning Kagermann extended his contract to remain CEO. The question of succession planning, however, has been hanging over SAP, and Léo Apotheker, has since been named Deputy CEO. Léo Apotheker is a French executive, and has been head of sales at SAP over a long and successful tenure.

Meanwhile, Business Objects has, as WSJ reports, been shopping themselves around. Predictably, all those who play in Enterprise Software – IBM, Oracle, SAP – were interested, since building a full-fledged Business Intelligence suite from scratch at this stage of the game would be impossible.

Other BI players in the market include, most notably, Canadian company Cognos, whose On-Demand / Software-As-A-Service (my definition, Enterprise 3.0) strategy is less concrete. Business Objects is definitely a better acquisition target.

For SAP, the combination of this gaping BI hole in their portfolio, and the fact that Business Objects is a French company, hence easier to integrate with the German parent, makes this deal a good way to get its feet wet in a game that they would need to play quite a bit going forward. The fact that it is most certainly in Léo’s comfort zone helps.

Bottomline, SAP had to start learning the game of big acquisitions. This is a very good start. My guess is, coming up next is a Content Management acquisition, another gaping hole in their portfolio. The likely target is OpenText (Nasdaq: OTEX), a $1.4 Billion Canadian company, in 2008.

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I agree that SAP should learn to do big acquisitions to compete with rivals like Oracle. But at the same time they should not end up with a bunch of overlaping set of products which does not gel togather. Otherwise they have to come up with some hodge podge technology like Oracle fusion middle ware to integrate Cat and mouse technologies inherited from some acquired company. It is not good for their customers.

BI News Monday, October 8, 2007 at 11:51 AM PT

Well, this was a long time coming, ever since Oracle sealed the deal with Hyperion, HP bought Opsware and IBM making acquisitions all over the place. The other thing is that this is totally out of character for SAP, since they are usually known for much smaller acquisitions.

To BI News’ point – while what you say is indeed true, SAP may be poised to change the way their ERP business works and to broaden their scope of their addressable market.

One other curious thing is that some of what BOBJ does (e.g. performance management) overlaps with SAP’s previous acquisitions (Outlooksoft). It’ll be interesting to see how SAP plans to address this.

Finally, unfortunately for end-users, all this consolidation is likely to leave the customer with fewer choices in the BI market. To paraphrase Boris Evelson from Forrester, Monopoly anybody?

Karthik Monday, October 8, 2007 at 1:58 PM PT

I wonder what impact this have on Business Objects’ recent announcements about their efforts to enter the BI SaaS market. For the most part, I think it’s safe to assume that those efforts are going to be scaled back dramatically.

First, Business Objects is going to be totally distracted for the next year or more, trying to get integrated into SAP. That means BOBJ will need to focus on their core BI market to keep their revenues up instead of focusing energy on new divisions that require a lot of energy and investment, but which don’t yet generate significant revenue for BOBJ.

Second, one of SAP’s stated reasons for the acquisition was to embed analytics into SAP’s applications. That is a big project that will take a huge amount of focus from BOBJ. Again, that ends up pushing their SaaS initiatives to the side.

Third, the SAP products that BOBJ will first be integrating into are SAP’s enterprise products, so naturally BOBJ will be focusing on selling to that market. BOBJ’s SaaS initiatives are focused primarily at the midmarket, so again they’ll be getting less attention.

And finally, SAP recently launched it’s own SaaS midmarket offering (Business ByDesign), which includes it’s own analytics embedded within it. This creates internal competition with BOBJ’s SaaS analytics.

Given that the stated reasons for SAP’s acquisition of BOBJ make no mention of SaaS offerings, I think BOBJ’s nacent SaaS offerings are in jeopardy.

Ken Rudin Monday, October 8, 2007 at 7:17 PM PT

Well, the stated reason is to plug the BI gap, SaaS is one level down, so is SME. I wouldn’t be surprised if those two elements actually make BOBJ attractive to SAP.

But your points about merger integration are well-taken. Overlaps would need to be resolved and rationalized, and it remains to be seen how that would take place.

Sramana Mitra Monday, October 8, 2007 at 7:32 PM PT

[…] Seeking Alpha, Sramana Mitra discusses SAP’s $6.8 billion acquisition of Business Objects at a 20% premium: Business Intelligence is […]

Software heats up - SAP buys Business Objects | Biz Dev in NYC by Rob Tsai Monday, October 8, 2007 at 9:00 PM PT

What impact do you think this acquisition will have on Cognos? It’s the last pure-play corporate performance management company left. Do you expect them to be acquired by HP, IBM, or another large player?

Ron Dimon Wednesday, October 10, 2007 at 7:47 AM PT

Of course.

Sramana Mitra Wednesday, October 10, 2007 at 8:42 AM PT

I have been specializing in integrating Crystal Reports with SAP BW for the past five years. Bottom line: when implemented correctly, it’s a terrific solution for the business end user. It requires a savvy analyst or IT developer to create the content and publish it to the web, but the tool is much more robust and easier to work with than the BI tools provided by SAP. But then, of course, that’s one reason why SAP bought Business Objects. Once the dust settles on this there are going to be a lot of happy end users out there.

Mike Garrett Thursday, January 17, 2008 at 12:43 AM PT

[…] Oracle. Now that SAP is not closed to the idea of major acquisitions as we have seen in the case of Business Objects, this suggestion gains more weight. In particular, with Cisco and Microsoft going aggressively […]

SAP’s Next Acquisition? - Sramana Mitra on Strategy Wednesday, February 13, 2008 at 11:23 AM PT

[…] SAP) reported results for a disappointing first quarter affected by the weakening dollar, the Business Objects acquisition and heavy investment in its SaaS initiative, […]

SAP Signals Weakness - Sramana Mitra on Strategy Thursday, May 1, 2008 at 9:41 AM PT

I agree with you. SAP has to be more concerned with functionality between platforms before they ca ncompete in the big guys market. Oracle is obviously a giant, but their processes have become to overstretched resulting in incongruent platforms for their customers. Much like edi, SAP needs to learn to aquire what is within the reaches of their existing consumer base.

P LAwblaw Tuesday, September 23, 2008 at 1:25 PM PT