Combining SAP and BusinessObjects
Henning Kagermann, CEO of SAP and John Schwartz, CEO of BusinessObjects today parried questions about SAPs proposed acquisition of BusinessObjects but as always we are left with open questions. The most significant part of the discussion cut across several questions Larry Dignan left hanging in the wind earlier today:
Can SAP digest a large acquisition?
The short answer is yes - by leaving BusinessObjects as a stand alone unit SAP is less likely to experience some of the digestion issues that are rumored to have plagued Oracle's acquisition of Hyperion. I hear for example that Hyperion folk find Oracle doesn't necessarily understand its business as well as they would like. However, the deal limits the opportunity for cost saving synergies. No-one I speak with believes that BusinessObjects will be left to paddle its own canoe indefinitely, especially given its most recent miss. If SAP is to eek the most out of this acquisition, it will need to find significant synergies beyond the declared €210-230 million annual amortization write downs.
Why the switch?
Henning Kagermann described the deal as 'strategic' because it allows the company to become a market leader in what he terms the 'business user' market. This is a part of the market Kagermann admitted where SAP has been weak. This segment comprises the many people SAP does not reach with its current offerings but which it could via business analytics products.
The fact BusinessObjects has an on-demand offering helps because as I suggested yesterday, it provides SAP with an immediate added value component to its Business ByDesign strategy. If SAP wants to get deep market penetration in the mid-market then analytics is a good way to go because it combines both transaction necessity with business information requirements. As always, the devil will be in the detail. Kagermann said that the acquisition will lead to a 'slight increase' in customers, indicating that there is significant overlap and that the non-SAP customer opportunity is limited.
On the question of overlap, SAP's past acquisition of Outlooksoft will create some headaches because BusinessObjects has a decent planning engine with which Outlooksoft competes. Whether this pushes SAPs existing relationship with Carthesis for consolidation into the background remains to be seen. These are all part of acquisition practicalities that will not become apparent until after the marriage is consummated.
Did SAP pay too much?
The market will decide but a 20 per cent premium is not excessive, given that BusinessObjects stock has been tracking up since rumors of a sale took hold in the middle of last month. However, the deal leaves SAP borrowing some €2-2.5 billion for repayment up to 2009. This implies that SAP will be unlikely to embark on other significant acquisitions over the next two years. To that extent, it represents a gamble. A debt laden SAP gives Oracle a clear run at mopping up parts of the market by using its high margins that generate free cash and so appear an attractive suitor.