Is Business Objects Up for Sale?

Is Business Objects [BOBJ] putting itself up for sale? The French newspaper Le Figaro reported on September 15^th that Business Objects SA had retained Goldman Sachs to find a buyer. The newspaper did not name its sources for the story. The newspaper stated that five companies were interested with SAP the leading candidate. Shares of Business Objects are up approximately 6% as I write this post.

This is still just a rumor (at least for now.) There have been previous rumors circulating about both Business Objects and Cognos being acquired over the past year and the software consolidation does not seem to be abating anytime soon To date both Business Objects and Cognos have been acquirers rather than being the acquired. But there are still several high tech titans that might be hungry for a fish that size.

Keep in mind that firms hold discussions with other firms about mergers or acquisitions very often. Sometimes the talks are very exploratory and sometimes they get into a formal due diligence. But no matter how serious the discussions get, it is not uncommon for the parties to end the discussions because they feel there isn’t a fit, maybe they feel another firm much be a better fit or the price is not right.

The usual suspects mentioned as suitors are SAP, IBM, Oracle and Microsoft. Two other potential bidders, that are long shots but maybe should consider acquiring Business Objects, are HP and EMC.

Why should any of them buy Business Objects? The company, products, customers and cash flow are all very attractive. Business intelligence, performance management and data integration are all growing markets that are high on priority lists for IT projects.

Let’s handicap the potential suitors:

SAP: 

[Pro] Business Object provides SAP with expanded BI and PM offerings outside its application framework, giving it a significant software product not requiring its application software. SAP makes the purchase just to keep up with Oracle’s purchase of Hyperion. And Business Objects is a European company with a significant US market presence may be a good fit culturally with SAP.

[Con] SAP has generally shied away from purchasing larger firms and acquired smaller firms such as OutlookSoft in its “tuck-in” strategy. Does SAP want to acquire a company of this size? Although Business Objects expands the capability for SAP customers does SAP really want to be selling best-in-class BI/PM software outside its application customer base? Ranking [B-]

Oracle:

[Pro] Larry Ellison wants to own the world! No one would have been surprised if Oracle had bought Business Objects instead of Hyperion before, so wouldn’t the same logic apply? Too many acquisitions (that does not seem to be a limiting factor yet!)  As opposed to SAP, Oracle already sells databases and other tools outside its application customers base so best-of-breed BI software works well in their business model. Oracle would be able to rationalize Hyperion and Business Objects into a cohesive product roadmap and long-term architecture.

[Con] How many overlapping companies can Oracle absorb without having customer too afraid to buy? Is the product overlap with Hyperion, Siebel Analytics and their own pre-merger BI tools too great to really create synergy? Ranking [B]

IBM:

[Pro] Software is becoming IBM’s top business line and Business Objects would be great jewel to add to it. In addition, IBM’s services group would leverage world-wide systems integration opportunities. Does IBM, fearing its rivals will buy the best BI pre-plays, simply buy for defensive purposes?

[Con] IBM has stayed away from major purchases in the BI and application markets in order to maintain that vendor-neutral in these markets. The lose of neutrality might eliminate some potential business integrating Business Objects competitors, however, if those competitors were bought out by IBM’s competitors then IBM would not get the business anyways. Ranking [A-]

Microsoft:

[Pro] What a great way to breakout from their application developer focused approach to building BI and analytics capabilities using a best-in-class BI suite. The sophisticated solutions offered by Business Objects would expand Microsoft offerings to enterprise deployments. It also picks up large enterprise-class customers quickly without having to convince them to give up their best-in-class BI software.

[Con] It has preferred smaller acquisitions, like ProClarity, that it can blend into their existing products rather than larger software acquisitions. How would Business Objects employees and customers perceive a Microsoft acquisition? Ranking [B+]

HP:

[Pro] HP has been expanding its software business just as IBM has. HP has dipped into BI by developing NeoView and through its acquisition of consulting firm Knightsbridge.  Business Objects enables HP to expand its services business more aggressively into BI, DW and PM projects rather than its more traditional infrastructure-type services. This expands both their software and consulting business without cannibalizing ay of their existing businesses.

[Con] This would be a large software acquisition for HP and may take them out of their comfort zone of infrastructure-related software. Ranking [A]

EMC:

[Pro] EMC is another hardware company that has been expanding their software business. Purchasing Business Objects supports that goal and also diversifies their software from disk storage related business. VMware has been a great example illustrating the value of that diversification.

[Con] This would be a significant departure for their software or services businesses and might require a significant mindset change and resource allocation to be successful. Ranking [C-] (Despite this lower ranking who knows what they are thinking? A lot of people thought they were nuts in acquiring VMware.)

Will Business Objects get acquired? Some would say it is inevitable that the software titans will acquire every significant business that competes with them. 

Comments

[Vincent McBurney]

I rate SAP low as they just signed a multi year deal with Informatica and IBM low as they have too much overlap with the data integration tools. There are much better BI options for these two. I give Microsoft almost no chance as they are building out cheaper BI tools.

I would rate Oracle a good chance as it would give them a new set of BI customers and a heterogeneous data integration stack that complements the ELT solutions.

I rate HP the best chance of all as it would give them an end to end Data Warehouse suite to counter offerings from Oracle and IBM.

[Vincent McBurney]

So I agree with your rankings! HP the best match.

[Darren Cunningham]

I think a better strategy for HP would be to start with Teradata and then go with MicroStrategy. I've always thought IBM/Cognos was a better match. As for the Business Objects/SAP rumor...that would not be a lot of fun, but certainly not out of the question. The Performance Guys wrote an interesting review here: http://performanceguys.blogspot.com/2007/09/how-lucid-is-business-objects-on-demand.html

[Rick Sherman]

Darren,

I enjoyed the Performance Guys comments you referenced.

IBM acquiring Cognos (COGN) has been a recurring rumor for over a year. It makes sense for technology and business reasons. On the sales side, Cognos is much more heavily dependent on direct sales than Business Objects (BOBJ.) With IBM’s sales force and partnership network there is potentially a nice pop in Cognos sales almost immediately after being acquired more so than with BOBJ. On the systems integration side, IBM’s Services and partners provide a huge influx of consulting power for BI and performance management solutions with an increased emphasis on industry-oriented offerings. Again, another area where Cognos can leapfrog BOBJ. And technically, no offense to Cognos, but its ETL product is the weak link in its offerings. Pairing it up with Ascential’s (IBM) DataStage would be a terrific (as would pairing it with another world-class data integration tool?!)

HP (HPQ) acquiring Teradata? That’s interesting since HP’s CEO ran Teradata but HP has developed Neoview, which it is deploying internally and selling to customers. That’s a big overlap that, although Oracle (ORCL) might be fine with that type of overlap, HP may not be willing to consider. Teradata may be a great acquisition but it may be more valuable to another high tech titan. In addition, NCR is set to spin-off Teradata on September 30th so that complicates things in the short-term but makes it easier to acquire later.

HP acquiring MicroStrategy (MSTR)…that’s one I have been thinking about for awhile. Great technology with a more reasonably (depressed?) priced stock. P/E ratio of 15, PEG 1.07, P/S 2.68, (all “better” than its main competitors), and it is 47% off its 52 week high! And with a market cap less than $1B. You don’t get the customers or company resources (sales, services or engineering) as you would if you acquired one of its bigger brethren but HP might not be interested in paying for those and would rather get the technology.

Rick

[Rick Sherman]

Vincent,

SAP: I was surprised the rumor was that SAP was the leading candidate to acquire BOBJ. It is out of character for them to do an acquisition this big. It also would get them out of their application “comfort” zone. It also would not really advance their push into the SMB (small to medium size business) market. BUT they are fierce competitors with Oracle and intense (macho?!) competition, like jealousy, may cause actions not done otherwise.

IBM: There is an overlap with DataStage and Data Integrator technically but maybe not a significant sales or marketing stumbling block. Data Integrator sales are small in a relative sense to BOBJ overall sales and to DataStage. BOBJ bought Acta and integrated it into their product line (a very good product to begin with and even better now) but they might have been too late to the dance for many potential customers. By the time Data Integrator was ready for its customers many of them had already standardized on Informatica or Ascential/IBM. You can transition the best aspects of Data Integrator, such as the metadata management, into DataStage and MetaStage products. ETL sales would not be a roadblock to this potential merger. Two questions. First, do you want a best-in-class BI software package and associated Services revenue versus being independent and its associated Services revenue? They crossed the line with best-in-class ETL, so best-in-class BI is a logical next step. Second, if we are going to buy a BI software vendor, should you buy Business Objects, Cognos (COGN), MicroStrategy (MSTR) or someone else? Any other suggestions?

Oracle: They already have Oracle Warehouse Builder (OWB) and Oracle Data Integrator (ODI), formerly Sunopsis, so one more overlapping tool is fine?! They would product a roadmap and, just like with IBM the ETL tool overlap should not deter a sale.

Finally, it is not just about technology. It also about revenue and profit from sales, maintenance, professional services; the size of the customer base; the quantity and quality of the sales and engineering organizations; and, the negotiations and the price.

More business intelligence or performance management companies are likely to be acquired. Stay tuned.

Rick

[Vincent McBurney]

The thing with the IBM BOBJ overlap is that IBM would have to write off about half a billion dollars worth of software: FirstLogic, Fuzzy!, metadata and Acta. They can't sell the tools off as that gives the products to a competitor, they can't keep them going as they are expensive to maintain. They could try to migrate these customers to the Information Server but Informatica would have a great time poaching them with discount offers.

I think SAP and IBM need a cheap BI product they can bundle with applications as a default reporting tool without shooting for the enterprise BI space.

[Rick Sherman]

Vincent,

What "cheap" BI product should SAP or IBM consider bundling with their applications as their default reporting tool?

Rick