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SAP, Business Objects in $6.7B Merger

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Posted October 8, 2007 By Erin Joyce     Feedback

Deal gives SAP a leg up in the business intelligence and SaaS space.

Enterprise software giant SAP plans to acquire software firm Business Objects in a $6.7 billion deal, (€4.8 billion), a move that vaults SAP ahead of the pack in the growing business intelligence space.

It also will help the German software firm leverage Business Objects' investments in providing its product lines as a service.

Business Objects, based in France and the U.S., makes software that helps companies analyze their own business decisions and the competition. It will remain a standalone entity, officials said during a press conference today to discuss the deal.

Henning Kagermann, CEO of SAP AG, said the combination of SAP's offerings with BI's would benefit customers, partners, employees and shareholders. The merger, he continued, will ramp up the solutions designed to strengthen decision processes, increase customer value and create sustainable competitive advantage through real-time, multi-dimensional business intelligence.

The deal is yet another signal of how hot the market for business intelligence software has become for major enterprise customers.

Speculation about who would win the derby to acquire Business Objects has been flying for months after a recent flurry of BI acquisitions this year. In March, SAP's archrival Oracle bought BI powerhouse Hyperion for $3.3 billion. At the time, the deal was seen as giving Oracle a big opportunity to steal SAP customers away with BI products that compete with Business Objects and Cognos.

Business Objects responded a month later with its own acquisition of enterprise performance management (EPM) software maker Cartesis S.A. for $300 million in cash.

In addition, Business Objects also got a leg up in the software-as-a-service sector a year ago with its purchase of Nsite software.

By contrast, SAP, considered the world's largest enterprise software provider with more than 41,200 customers across 120 countries, had chosen the organic route to BI growth -- until the Business Objects deal.

But analysts such as Ovum Research's David Bradshaw and Helena Schwenk said that SAP had no choice but to respond to Oracle's purchase of Business Objects' competitor Hyperion, which specializes in adding financial and performance-management tools to SAP systems.

"Another factor is the business growth that SAP can get from the combination," the analysts said in a research note. "Large suppliers are attracting an ever-larger share of customer spend, as customers try to reduce the number of suppliers to bring some order to their IT buying. In some accounts, the purchase might turn SAP from being an 'also ran' into a strategic supplier."

In addition, they noted, the acquisition "will bring both data extraction capabilities and market-leading front-end query and reporting tools, complementing parts of the NetWeaver BI stack," referring to SAP's cornerstone platform that it opened up to developers just last week.

The friendly merger, as described by both companies during a press conference in Frankfurt today, includes a cash offer of €42 per share, which is about a 20 percent premium over Business Objects' closing price Friday before the deal was made public.

Traders appeared to greet news of the acquisition with caution, given that Business Objects warned of lower profits just before the acquisition was announced. Shares of SAP's U.S.-listed shares were off by 5 percent to $56.24 today in early trading.

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