SAP to acquire Business Objects

Oct. 8, 2007

London, October 8 -- Late last night at in impromptu press conference, SAP announced that it had agreed to acquire Business Objects for €42 per share or around €4.8bn. The deal needs approval from the shareholders of Business Objects. It also depends on the approval of the French Stock Exchange Authority and the French Finance Ministry. It's also complicated by Business Objects having dual listings in Paris and New York.

David Bradshaw, Principal Analyst and Helena Schwenk, Senior Analyst at Ovum, comment:  "There are two key questions here: why is SAP buying Business Objects, and why is Business Objects interested in being acquired? Turning to the first, SAP has tended to carry relatively small acquisitions and that's one thing this isn't. So there must be compelling reasons from its side for this to happen.

"Most obviously is retaliation to Oracle buying Business Objects' competitor Hyperion, which specialised in adding financial and performance management tools for SAP systems. While neither SAP nor Hyperion can afford to back away from this relationship, it is deeply uncomfortable to SAP. We therefore expect SAP to work with Business Objects - which only recently acquired performance management vendor Cartesis itself- to provide an alternative for its customers.

"Another factor is the business growth that SAP can get from the combination. Large suppliers are attracting ever larger share of customer spend, as customers try to reduce the number of suppliers to bring some order to their IT buying. In some accounts, the purchase might turn SAP from being an 'also ran' into a strategic supplier. However, our experience is that SAP tends to be either a strategic supplier to its customers, or to have such a small footprint that it is barely on the corporate radar screen.

"But a much more important and longer term objective is what we call 'operationalizing' the intelligence from the business data, and here Business Objects brings great breadth of BI and performance management capabilities to SAP. Managing processes and transactions efficiently is only half the challenge that the typical business faces - the other half (at least) is trying to decide what the smart thing is to do. Typical BI systems address only top management's need for 'intelligence', which is why penetration of BI within the enterprise has only hit the 15-20% range.

"Two other issues for SAP in the acquisition will be conflict with its existing BI capabilities and its relationship with other BI vendors. SAP's own BI platform (SAP Netweaver BI) competes with BI vendors in around 30% of deals, but SAP also operates in a landscape of 'co-opetition' with the leading BI vendors - including Business Objects - to complement and broaden the reach of Netweaver BI. Some SAP customers had success with Netweaver BI, but others had problems, for example with integrating non-SAP and SAP data sources and the complexity of SAP's analysis front end (BEx).

"The Business Objects acquisition will bring both data extraction capabilities and market-leading front end query and reporting tools, complementing parts of the Netweaver BI stack. However, there are huge areas of overlap between the product sets. We expect any soon-to-be-announced integration plans to detail the areas for rationalisation and the product roadmap moving forward. How well it can carry on 'playing nicely' with competing BI vendors after it acquires Business Objects remains to be seen, but we think it will have no choice but to try.

"So why would Business Objects want to sell? Consolidation in the independent BI space has picked up space recently with the acquisitions of Hyperion, Cartesis and Applix - to name a few - all happening this year. In fact rumours surfaced in September in the French newspaper Le Figaro that Business Objects was looking for a buyer. We expect this consolidation trend to continue in the future, so it comes as no surprise that Business Objects took the initiative. The only other indicator was a profit warning that the company issued last night. Business Objects will hope that being part of a larger company will help drive revenue and growth for its BI and performance management products in an increasingly competitive market."