SAP buys Sybase, gets back in the race

Summary:SAP and Sybase are very complementary, from the business, technology and market penetration perspectives. But the price of $65 in cash for each Sybase share by SAP -- a 44 percent premium to Sybase's average price over the past three months -- shows that this is no marriage of convenience.

The torrent of major IT acquisitions notched another milestone today when German business applications powerhouse SAP announced plans to buy fast-growing database and mobility vendor Sybase of California for $5.8 billion.

The news comes as the IT vendor space is witnessing an historic consolidation, via both acquisitions and partnerships. From HP buying Palm, to IBM buying Cast Iron, to EMC partnering with Cisco, to Oracle absorbing Sun Microsystems, the rush is on to present a new all-in-one face to the enterprise IT buying community.

As I said in my earlier post today -- in analyzing product news from HP, IBM and TIBCO -- the receding recession has provided a catalyst for a much larger shift in how IT is done and delivered. These tier-one vendors know something big is up in IT, beyond business as usual, beyond a typical turnaround in the business cycle.

SAP and Sybase are very complementary, from the business, technology and market penetration perspectives. But the price of $65 in cash for each Sybase share by SAP -- a 44 percent premium to Sybase's average price over the past three months -- shows that this is no marriage of convenience.

It's more like a shotgun wedding, and the shotgun is being aimed by a rapidly changing IT environment that favors scale, comprehensive products and services, and global delivery capabilities. A big war chest and a yen for cloud computing don't hurt either.

SAP needed to get back in the Big Game to remain a top-tier IT vendor. Sybase fills major gaps in SAP's portfolio, and gives it an instant chance to play in rapidly changing mobile market.

Sybase has not been ailing, but growing quite well, mostly from its core database and tools businesses. Sybase took a big departure a few years ago with a big swing into mobility infrastructure for enterprises. They have done well, but the stakes in the last year has grown higher as netbooks, smartphones, iPhones and iPads have made mobility the client-side growth markets.

Sybase would not likely grow organically into more aspects of IT, despite it's core strengths and large presence in Asia and on Wall Street. SAP gives to Sybase the larger business applications and sheer global scale to enter the tier-one vendor space faster than it could alone.

But this is no slam-dunk. It's risky. SAP acquisitions have been spotty in terms of numbers, size and success. These companies are very different culturally and geographically. Sybase has a strong engineering streaks, which is a good fit -- if the politics can be worked out.

The level of risk, like the price, indicates that there's a hint of desperation in the SAP-Sybase meld, if not in terms of survival at least in terms of the grasping to deal with an IT landscape that is rapidly turning into a handful of mega vendors.

Now that the flood gates on M&A mania have been opened, one has to wonder what will be next for Red Hat, TIBCO, BMC, Progress Software, Novell, Citrix and the dwindling number of larger tier-two IT infrastructure vendors.

Topics: Data Centers, Data Management, Enterprise Software, SAP, Software

About

Dana Gardner is president and principal analyst at Interarbor Solutions, an enterprise IT analysis, market research, and consulting firm. Gardner, a leading identifier of software and cloud productivity trends and new IT business growth opportunities, honed his skills and refined his insights as an industry analyst, pundit, and news edito... Full Bio

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