SAP buys Business Objects

Months after Oracle purchased Hyperion for BI and CPM, SAP has taken its own leap into BI, buying Business Objects for US$6.8 billion.

In a major departure from its strategy of small "tuck in" acquisitions and organic growth, SAP is leaping into the business intelligence (BI) market with the acquisition of Business Objects SA.

SAP announced the tender offer agreement on Sunday, Oct. 7. The company will acquire Business Objects for US$6.8 billion, or 42 euros per share, a 20% premium over Business Objects' Friday closing price. The deal is expected to close in the first quarter of 2008.

Until now, SAP has maintained a strategy of building new capabilities organically, coupled with making smaller, targeted acquisitions to fill in gaps. In February, it acquired Pilot Software and in May acquired Maxware and Wicom Communications for service-oriented architecture-based security and call centre technology, respectively.

That's a stark contrast to Oracle, SAP's top competitor in the business applications market, which has been on an acquisition spree in recent years, snapping up more than 25 companies. In March, Oracle acquired Hyperion for its BI and corporate performance management technology.

SAP CEO Henning Kagermann denied that Sunday's announcement was a reaction to Oracle and to Oracle's claims that it is gaining market share.

"You can just look to the figures and see this is wrong," Kagermann said on a conference call with press and financial analysts. "There is no need for reaction here. We are on track. We proved with organic growth we can outperform the market. We have proved we can be an innovator. We can make smaller tuck in acquisitions, and we have proved we can make larger acquisitions."

For several reasons, Business Objects elected to accept the SAP offer, CEO John Schwarz said. Business Objects, which will continue to operate as a separate business, is focused on expanding into the midmarket -- also an area of interest for SAP, which has released plans for Business ByDesign, an on-demand business application suite for midmarket customers. Additionally, where SAP has been strong with clients in the manufacturing industry, Business Objects has a strong presence in the finance and health care sectors, Schwarz said. Business Objects currently has 44,000 customers.

But according to research firm Ovum, the move was a clear reaction to Oracle.

"Most obviously this is retaliation to Oracle buying Business Objects' competitor Hyperion, which specialised in adding financial and performance management tools for SAP systems," wrote Ovum analysts David Bradshaw and Helena Schwenk in a research note. "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. "

SAP does have its own BI product, NetWeaver BI, and according to Ovum, has traditionally worked with leading BI vendors to extend the footprint of its own product.

"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," Bradshaw and Schwenk wrote. "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."

The market did not react well to the news. Shares of SAP dropped more than 5% Monday morning after the news was released.

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