Business Objects Acquired by SAP: No Surprise!

The French newspaper Le Figaro's report on September 15^th that Business Objects SA had retained Goldman Sachs to find a buyer with SAP the leading candidate was correct. (See Is Business Objects Up for Sale?) 

SAP (SAP) announced its intension to acquire Business Objects (BOBJ) for an all cash offer of $59/share or $6.8 billion. Business Objects says SAP approached them, not the other way around. Spin? It doesn't matter, the result is the same: one more independent BI or DW software firm has been absorbed by one of the software titans – Oracle (ORCL), SAP, Microsoft (MSFT) and IBM (IBM).

This is SAP's largest acquisition to date and a shift from its focus on organic expansion supplemented with a tuck-in strategy for a few selected smaller purchases such as OutlookSoft. SAP acquires the largest, public, independent business intelligence software company with a great product line and large customer base.

Business Objects, in contrast to SAP, has expanded organically but utilized an acquisition strategy to acquire major portions of its data integration (Acta), reporting (Crystal), data quality (First Logic) and performance management (SRC, ALG and Cartesis) product lines. It has been successful as an acquirer, how will it fare on the other side of an acquisition? The initial announcement is that it will run independently, but for a $6.8 billion price will that independence really last?

As a side note, Business Objects announced that it will miss its third-quarter earnings. Its revised estimates are for earnings of four cents to six cents a share on revenue of $366 million to $370 million, down from estimates of 16 cents to 20 cents a share on revenue of $382 million to $387 million. It blames the downward revision on lower than expected license revenue. This would have caused some concerns if not for the acquisition.

What are the impacts or repercussions of the acquisition?

Investors

Very positive for Business Objects investors and the insiders with stock options. The purchase price was a 20% premium over Friday's closing price, however, that understates the gains, because actually the stock has had gained nicely recently with a closing price as low as 38.80 on August 21^st.

SAP investors took it initially on the chin with a 4.8% decrease on the closing price today. Comments such as overpaid, too late to the game or too difficult an acquisition were often sited for reasons for the stock decline but those were the same arguments made regarding many of Oracle's acquisitions but those concerns have not panned out.

Positive news for investors, at least in the short-run, for a few of Business Objects' competitors on acquisition speculation. Cognos (COGN) rose 13.6% on trading volume of 6 million shares versus its 3 month average of 1.1 million shares. Informatica (INFA) and Actuate (ACTU) both increased 3.6% on trading volume about double their average.

Customers

There is an estimated 40% overlap in SAP and Business Objects customers. So the impact will vary based on if you have either or both these companies' products.

SAP customers:

There is an overlap between NetWeaver BI and Business Objects BI software suite but SAP customers should enjoy the benefits of a best-in-class BI vendor if they migrate to Business Objects software. One of the strengths of the Business Objects product family is its metadata integration.  If SAP extends that integration to include its business applications this clearly will be a productivity and compliance boom to its customers. Of course, the qualifier on this "additional" functionality will be the cost. If SAP customers are faced with an "up-sell," will they find this functionality worth the price? 

Business Objects customers:

They will now be buying their BI suite from one of the software titans, which will have more resources and money than the independent BI firm, but is that a positive or a negative? Beauty is in the eyes of the beholder. If they already buy from both firms then it is likely a net positive, unless there are increases in overall licensing costs, i.e. up-sell. If they do not have SAP business applications then they probably bought Business Objects because it was an independent firm and they are not likely to see the benefits of the acquisition.

In the corporate performance management space there is truly a lot of overlap with the companies making half a dozen acquisitions, potentially overlapping, to build out their CPM suites. This will be an interesting product roadmap! A key question will be how tightly the "revised" CPM suite is tied to SAP applications. If it's very tight then that would potentially provide a lot of value to SAP customers, but moves the Business Objects offering from being ERP neutral. Of course, maybe this is a myth anyway with the software titans offering applications, data integration, business intelligence and CPM as part of their application stack.

Overall, the dangers with any large software acquisition are both internal and external. Internally, how much disruption is there in the organizations as product roadmaps and staffing are debated and the inevitable politics unfold? Internal politics does not always equate to better products for the customer. Externally, does FUD (fear, uncertainly and doubt) disrupt purchase decisions and it that FUD card played by competitors? It sometimes has a significant impact on the market until product timetables and roadmaps are unveiled.

Bottom Line

Business intelligence is a healthy, growing market. The top tier independent vendors have solid profit margins, terrific cash flow, little debt and good growth potential. Two of the top three independent BI players, Hyperion and Business Objects, have now been acquired by software titans (Oracle and SAP respectively.) Many smaller BI and CPM firms have also been bought over the years. M&A activity will continue in this industry even though I continually am asked who's left.

BTW: we'll talk about who's next in a follow-on post.

Comments

[ckeene]

I think this represents a pretty stark strategy shift for SAP, away from organic growth and towards a me-too acquisition strategy in pursuit of Oracle (who has a 4 year lead). I wrote more of my thoughts here

[Rick Sherman]

Chris, I enjoyed your insights on your post.

If you liked SAP's organic approach to expansion then you admired their engineering prowess but if you didn't like it then you thought they were stuck in the NIH (not invented here) syndrome. Early on in the evolution of BW I did a market assessment of the OLAP/BI market for SAP. I thought they were using it as part of a due diligence to acquire someone but it was used to assess what they needed to build. My undergraduate degree is in engineering and I kind of admire (from that perspective) their organic expansion.

But as a business person I recognize that Oracle has done it right. They have, as you stated, "...four years to learn the difficult art of post-merger integration." M&A is tough. Add in multiple engineering cultures from Germany, France and the US and the fun begins. Plus BOBJ has been the acquiring company to date, it's different on the other side even if you are supposed to be run as a subsidiary.

Thanks for your insights, Rick

[Ryan Petersen]

This acquisition is good news to Open Source BI Vendors like Pentaho. The pricey/legacy BI vendors will continue to get swallowed up by IT conglomerates, while more cutting-edge technologies experience rapid growth and adoption in the enterprise space...