FT : Market Says SAP-BO Reeks

Tuesday, October 9, 2007

Germany’s SAP, the world’s largest maker of business software, Monday signalled it could look at further acquisitions even as its departure from an avowed strategy of organic growth sent investors running for cover…..SAP chief executive Henning Kagermann said SAP was on its “way to proving we can make larger acquisitions”….. Investors were rattled because Mr Kagermann had for years underlined SAP’s superiority to US rival Oracle by pointing out the German company was focused on organic growth – not dealmaking. To catch SAP, Oracle has spent billions on buying rival makers of central business programmes as well as end-user suppliers such as Hyperion, a Business Objects rival, it bought for $3.3bn (€2.3bn) this spring…..[Kagermann] said the move was consistent with SAP’s strategy outlined as far back as 2003. Having “done our homework” in its two core sectors, which would still grow organically, SAP now had time to look at end-users’ needs. As demand for traditional manufacturing and supply-chain management slows, SAP said that sales of business analysis software were growing at around 10% per year from current annual sales of about €10bn…..SAP has spent the past years reinventing its so-called business process platform, the nervous systems of companies’ IT systems, and making a foray into the market for mid-sized companies, which critics argue came late.

Volte-Face
SAP has changed its mind.  The German software maker has spent the last few years talking up its organic growth strategy and has only occasionally indulged in small deals.  This has been in marked contrast to the $20bn-plus spending spree of rival Oracle.  Yet SAP has now joined the game, with a friendly €42 per share offer for Business Objects.  SAP’s largest ever acquisition, which places an enterprise value of €4.2bn on the French group, prompted a 4% fall in the share price.  For a company that has been rebuilding investor trust after a profit warning in 2006, the abrupt change of direction will not help.  While it makes sense to gear up, many investors had hoped that excess cash would be returned via a buy-back.  And it did not help that, after SAP launched its bid on Sunday, Business Objects announced yesterday morning that it had missed third quarter earnings estimates.  The group has clearly been dressed up for a saleOracle’s purchase of Hyperion this year left only Canada’s Cognos and Business Objects as independent providers of the data-crunching software known as “business intelligence”.  With SAP’s own product in this attractive niche comparatively weak, its hand has been forced.  Still, Business Objects is the market leader, and the multiple paid of 30-35 times revised 2007 earnings is not that far from the 28 times that Oracle paid for Hyperion.  Two fifths of Business Objects’ customers use SAP software, suggesting a decent opportunity for cross-selling, and the deal will improve SAP’s US presence.  There should also be savings from shared marketing and from cutting overheads, even though the business will be run as a standalone unit.  Provided that its core activities continue to grow, SAP can be forgiven for the reversal in strategy.

References :
http://www.ft.com/cms/s/1/3450a1b0-7602-11dc-b7cb-0000779fd2ac.html
http://www.ft.com/cms/s/0/38a3f1ea-75d0-11dc-b7cb-0000779fd2ac.html

One Response to “FT : Market Says SAP-BO Reeks”


  1. […]  It is the second-largest deal SAP has done since buying Business Objects for $6.1bn in 2007.  That deal was criticised as overpriced, and this time it has paid an even higher multiple of expected sales. […]


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