Monday, October 08, 2007

SAP to Acquire Business Objects

SAP announced on Sunday that it will acquire business intelligence firm Business Objects, vendor of BusinessObjects XI and Crystal Reports, for 42 euros in cash for each share in Business Objects, a 20% premium over the stock's closing price on Friday.

SAP will finance the deal with available cash and borrowed funds. It cautioned, however, that the acquisition would reduce earnings in 2008 before boosting profit in 2009. The acquisition is SAP's largest to date and a reversal of its avowed organic-growth strategy.

The Germany-based software giant said the primary driver for the deal was the opportunity to gain new business. The company is racing to double its customer base to 100,000 by 2010 by wooing more small- and medium-sized firms. The business intelligence market is estimated to be worth $10 billion in annual revenue and is growing at 10% a year.

The purchase comes in the wake of a shopping spree by rival Oracle Corp. , which has spent more than $25 billion on acquisitions since 2005. Earlier this year, Oracle bought Business Objects' competitor Hyperion Solutions for $3.3 billion.

Analysts warned that the transaction could damage the company's relationship with Microsoft Corp., as Business Objects is Microsoft's primary competitor in the mid-market space. Goldman Sachs analysts cautioned that SAP now has a "significant need" to prove it can integrate Business Objects successfully, particularly given its limited experience to date with acquisitions.

Business Objects management said it supports the takeover and that its board plans to recommend the offer to shareholders. The company will operate as a stand-alone unit in the SAP group, the companies said.


Ernie Schell said...

Microsoft and SAP have had a well-publicized relationship whereby Microsoft's database and office software is integrated with SAP's technology to provide companies with business intelligence services.

Credit Suisse analyst Jason Maynard said in a note released to clients Monday that this relationship may now be on the rocks.

"The SAP/Microsoft partnership seems to have fallen apart as the two companies appear to be on a competitive collision course," Maynard wrote.

A Microsoft spokesman did not immediately respond to a request for comment.

Maynard noted that in addition to business intelligence, SAP and Microsoft have also seen increased competition recently thanks to SAP's introduction in September of software hosted online for businesses, which competes with a similar Microsoft product.

Ernie Schell said...

Says the current issue of Intelligent Enterprise:

" At the rate big software companies are snapping up business intelligence vendors, you'd think BI was a magic elixir for solving today's business problems. But in reality, BI has fallen dramatically short of its full potential. Companies want much more from business intelligence systems, including the ability to predict customer problems and make analysis part of minute-to-minute operations, not merely an after-the-fact report.

"That's far from the current experience of most BI users, but the technology is moving in the right direction. BI vendors recognize that businesses want query, reporting, and analysis tools that meld with their operations, not sit off to one side. That's one standard by which SAP is sure to be judged in its planned $6.8 billion acquisition of Business Objects, announced last week, a catch-up move to Oracle's $3.3 billion deal for Hyperion in the spring. And SAS Institute and Teradata last week promised to integrate their products so that businesses can run SAS analytics in Teradata data warehouses without a lot of extra work."

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