SAP plans to acquire Business Objects

SAP announced Sunday afternoon it plans to acquire Business Objects in a cash deal valued at slightly more than $6.8 billion.

The acquisition, which is expected to close in the first quarter of 2008, is SAP's largest acquisition ever. The deal is especially noteworthy for SAP, which has tended to favor developing its own technology rather than acquiring it.

The acquisition of Business Objects, a leading player in business intelligence software, is designed to dovetail into SAP's previously announced plans to double its addressable market by 2010, said Henning Kagermann, SAP chief executive, during a press conference Sunday afternoon.

Nearly a year ago, SAP noticed the business intelligence market was growing at a rapid rate. SAP's customers, meanwhile, have been calling on the enterprise applications giant to add an end-to-end solution for structured and unstructured business analytics and embed them into SAP's business suite, Kagermann noted.

"This acquisition accelerates our growth potential," Kagermann said.

Forrester Research estimates that the business-performance solutions market will grow by 11 percent through 2010.

Business Objects, based in San Jose, Calif., and Paris, will operate as a stand-alone business and be part of the SAP Group.

Roughly 40 percent of Business Objects' customers use SAP, said John Schwarz, Business Objects chief executive.

The companies said there is very little overlap among their products and neither company expects significant restructuring as a result.

With the Business Objects acquisition, SAP will be further positioned to compete against archrival Oracle. Last March, Oracle acquired business intelligence tool developer Hyperion Solutions in a $3.3 billion deal.

When the Hyperion acquisition was announced, Oracle said that "thousands of SAP customers" relied on Hyperion for things such as financial analysis and systems of record for financial reporting. With its acquisition, Oracle said, SAP customers would need to tie into Oracle's Hyperion software to view and analyze their underlying SAP enterprise resource planning (ERP) data.

Business Objects' Schwarz, however, noted that his company is roughly three times the size of Hyperion.

UPDATE on October 8 at 7:22 a.m. PDT:

Analysts, however, believe the SAP-Business Objects deal was driven by Oracle's Hyperion acquisition and that restructuring is likely in store for the companies.

Roughly 20 percent of Business Objects' business overlaps with that of SAP, in the performance-management software side. Between them, SAP and Business Objects offer three financial consolidation products.

The other 80 percent of Business Objects' business, which deals with business-intelligence tools, is where SAP will find value, said Paul Hamerman, an enterprise applications analyst with Forrester Research.

"I think there will be restructuring. There are personnel and real estate costs that SAP will have to rationalize," Hamerman said.

Just last April, SAP apparently wasn't convinced it needed to buy itself into the business intelligence market. Hamerman said he spoke with Kagermann at Sapphire, SAP's annual user conference, where the SAP CEO said he couldn't expect to make a big push into the market with an acquisition and still get a return on investment by 2010.

Meanwhile, AMR Research notes that spending on business-intelligence and performance-management products is expected to reach $23.8 billion by the end of the year, up 3.6 percent from the previous year.

Shares of Business Objects soared 16 percent in morning trading on Monday to $58.36 a share. SAP shares dropped 5.2 percent to $56.14 a share.