SAP acquires Sybase for $5.8 billion, but why?

SAP makes a land grab acquisition with Sybase at $5.8 billion. Does it make sense and if so how?
Written by Dennis Howlett, Contributor

Rumors have been circulating the last days that SAP would announce a significant acquisition. There had to be something in the wind since Vishal Sikka, CTO SAP was a no-show at TIBCO's TUCON second day keynote. Today, we learn the target is Sybase.

The deal is expected to close at $5.8 billion via a tender offer, a 44% premium on the average last three months' Sybase share price. The deal is financed from SAP's existing cash resources plus a $2.75 billion loan facility. SAP believes the acquisition will be immediately accretive and Sybase will operate as a stand alone brand.

Also see:

SAP announces $5.8 billion acquisition of Sybase SAP to acquire again?Dana Gardner: SAP buys Sybase, gets back in the race SAP acquires Sybase: Mobility and database optionsSAP: More company news and full coverage

John Chen, CEO of Sybase said: "We see potential in the combination of the leader in business applications and the leader in mobile...I firmly believe this transaction is about growth. " Vishal Sikka said: "This will dramatically increase our presence in mobile...supporting all platforms, Blackberry...Windows...Google...Apple"

The last couple of years, SAP has talked implicitly about proliferating SAP via devices so at one level this acquisition fits into a strategy that's been infolding for a while. However, as Ray Wang notes:

SAP has broken its promise of no more big acquisitions after the BusinessObjects deal.  However, these acquisitions make sense toward the path of next generation applications.

During the analyst call, much was made of the in-memory database core that SAP has developed and Sybase column stores as an enhanced baseline requirement for analytics in large scale environments. One short term problem will be a perceived confusion over database selection and the future of the relational database in SAP environments. Vishal Sikka disputes that, describing the market as both mature but diverse. Sybase has a significant market share in financial services, a market around which SAP sees huge potential despite the recent financial services sector meltdown. But how real is the likelihood of SAP emerging as a key FSI player?

Co-incidentally, earlier in the week, I heard a presentation from Deutsche Bank which showed SAP at the core of the bank's applications strategy as part of a complete applications overhaul. SAP is only providing back office and even then a pared back version with emphasis elsewhere. It is others that are providing the applications and services that will make an operational and value led difference. Deutsche Bank is a marquee SAP customer in its own back yard. If this is representative of the extent of SAP's ability to develop profitable relationships in this market then that is anything but a done deal.

On the mobile side, questions must be raised about what this means for applications - again in the financial and telco utility space. Most applications in these markets are driven by opportunistic marketing campaigns requiring the development of new offers. That in turn often means custom development. Does SAP think that Sybase and in-memory gives them an entree to this massive market? If so how does it plan to manage all the integrations required? Where is the rapid apps development environment that would make SAP a natural choice? It has no real ownership in these markets such that the new combination makes direct sense.

One analyst on the call asked about a middleware acquisition. That's a necessary pre-requisite in my opinion for this acquisition to make genuine sense for the declared joint markets. SAP management was quick to discount the 'stack ownership' question. I don't see this as a defensible position for the long term - whatever they may say about technical synergies.

If SAP really wants to capitalise on all these opportunities it has to make a middleware and integration play or - as seems increasingly the case - deepen its relationships with integration and technology providers like TIBCO and SAG. This has the curious effect of creating a perverse dependency on smaller players who do this kind of heavy lifting. Or...it creates the circumstances under which another acquisition is inevitable.

See also Dana Gardner's assessment of this deal as a shotgun wedding and Sam Diaz earlier report of rumors around this deal.

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