The French newspaper Le Figaro’s
report on September 15th 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) 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?
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
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.
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.
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
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
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.