Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



SAP Goes Big

While Oracle (Nasdaq: ORCL  ) and IBM (NYSE: IBM  ) have been striking huge software acquisitions over the past few years, SAP (NYSE: SAP  ) has instead focused on organic growth and tuck-in deals. But as of this week, SAP is joining the crowd, by agreeing to shell out $6.8 billion for Business Objects (Nasdaq: BOBJ  ) . However, the deal faces some serious challenges.

On its face, the transaction is a nice fit. SAP develops software to help companies manage complex functions such as payroll and human resources. As for Business Objects, its technologies -- known as "business intelligence" (BI) -- allow managers to analyze the kinds of data that resides in SAP's repositories.

SAP said it will ramp up its sales efforts of Business Objects' offerings in Asia. Only one slight overlap exists with Business Objects' base of around 44,000 customers, and even that is an opportunity for cross-selling. Another nice benefit is that about a third of Business Objects' revenues come from mid-market customers, and SAP sees this segment as an opportunity to boost growth.

Based on other deals in the space, SAP is paying a competitive price -- about 4.9 times trailing-12-month revenue, comparing favorably with Oracle's buyout of Hyperion for 4 times revenue and Cognos' (Nasdaq: COGN  ) deal for Applix (Nasdaq: APLX  ) at 5.5 times revenue.

But SAP shareholders need to be cautious. After all, megadeals can be tough to pull off. Just take a look at Oracle, which had to spend several years wringing value from its acquisitions.

In the meantime, Business Objects' rivals will try to capitalize on the potential disruptions and uncertainty regarding SAP's merger-and-acquisition skills. Might customers feel more secure going with Cognos or Oracle instead? SAP is also in the midst of launching a mid-market-focused Web-based system, which will require lots of managerial attention.

Any way you look at it, SAP is taking on considerable risks, and the payoff is going to take time. Risk and time are both tough things for Wall Street to stomach, especially in the fiercely competitive tech marketplace.

For more Foolishness:

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 538210, ~/Articles/ArticleHandler.aspx, 10/27/2016 5:16:16 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 8 hours ago Sponsored by:
DOW 18,199.33 30.06 0.17%
S&P 500 2,139.43 -3.73 -0.17%
NASD 5,250.27 -33.13 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 4:02 PM
SAP $87.76 Down -0.55 -0.62%
SAP AG (ADR) CAPS Rating: ****
IBM $151.81 Up +0.93 +0.62%
IBM CAPS Rating: ****
ORCL $38.31 Down -0.05 -0.13%
Oracle CAPS Rating: ****