Sybase's $425 Million Mobile Plan

Sybase (NYSE: SY  ) last week shelled out $425 million in cash for Mobile 365, a company backed by venture capital. It's certainly a big deal -- in comparison with Sybase's $2 billion market cap -- and investors nudged the stock down 4% on the news. Yet, being a player in the fast-moving mobile world means high-priced deals are unavoidable, and in this case, Sybase made a savvy choice.

Sybase was founded in 1984 and was an early developer of enterprise databases. However, with the intense competition from Oracle (Nasdaq: ORCL  ) , it had to differentiate its offerings. Over the past several years, the company has moved into mobile software applications, which connect to enterprise databases. This was done primarily through acquisitions, such as Extended Systems in October 2005, XcelleNet in April 2004, Dejima in April 2004, and AvantGo in February 2003.

What does this mobile technology do? Well, a cable company can have its field technicians use laptops to record customer interactions, or a pharmaceutical distribution company can have its drivers keep track of deliveries by scanning bar codes.

Mobile 365 develops software that allows for mobile messaging -- such as sending SMS (short message service) and IM messages. Over the past year, revenues were $90 million and the growth rate was about 20%. At more than four times revenues, the price tag is not cheap.

But for Sybase to be a true player in the mobile enterprise space, it needs what Mobile 365 offers. First, Mobile 365 has a hosted solution, which is similar to Salesforce.com's (NYSE: CRM  ) approach. Customers access the technology directly from Mobile 365 servers, meaning there is no software to install. In fact, the company's platform delivers more than 3 billion mobile messages per month for customers like Citigroup (NYSE: C  ) , Yahoo! (Nasdaq: YHOO  ) , Sony (NYSE: SNE  ) , and Microsoft (Nasdaq: MSFT  ) .

Next, Mobile 365 has more than 700 carrier relationships. This gives Sybase an opportunity to cross-sell its own products -- such as AvantGo and mFolio -- in its new carrier channel. According to Sybase's estimates, the mobile messaging market is expected to reach $7.5 billion by 2008.

With sales growing slowly (6% to $215.6 million in the second quarter), Sybase should get a bump up in its top line from the acquisition. The deal is also expected to add to earnings within six months. But, more importantly, as companies increasingly adopt mobile solutions, Sybase will now have a much better network of carriers and hosted solutions -- which should be a catalyst for growth for the long term.

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Fool contributor Tom Taulli does not own shares mentioned in this article.


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