Has SAP missed a trick?

Sybase may be a costly mistake

So it looks like SAP is going to buy Sybase, database vendor. But SAP is paying a lot of money for the company placed fourth in its main market. The price per share, at USD65 and a 44% premium to the pre-announcement price, hearkens back to the mid-1990’s when Sybase was still considered a serious competitor to Oracle, IBM, Ingres (another decliner), and Microsoft was not taken seriously as an enterprise computing vendor.

Here at Vox Sapiens we are not sure this is the right move for SAP. Firstly, Sybase is probably a poor choice at virtually any price. But there is plenty of commentary available on this elsewhere on the web.

So instead, here at Vox Sapiens we will discuss the company that SAP should have bought. And that company is Software AG (or “SAG”).

SAG is the second largest German software vendor, after SAP. The SAG headquarters are in Darmstadt, just south of Frankfurt and only 70km (45 miles) north of Walldorf, the home of SAP. There would be huge cost synergies achievable in a very short timescale. In fact, on cost synergies alone SAP has a huge advantage over any other potential acquirer of SAG. Furthermore, the market capitalization of SAG is approximately half that of Sybase pre-announcement, making it easier to swallow.

But more importantly, SAG is probably a much better fit strategically.

Sybase brings two things to the table: a database and mobile computing capability. What can SAP do with these?

Well the mobile capability is interesting, and fits with SAP’s strategy of moving access onto mobile platforms. But there are plenty of small companies with this capability that SAP could snap up at a fraction of the price of Sybase.

And the database is really no big deal at all. SAP has alliances with the three bigger database vendors, alliances that allow the SAP application(s) to work on these databases. And existing customers are highly unlikely to be persuaded to switch databases just because SAP owns Sybase. The cost of switching will be very high, and it is 99.99% certain that the former database couldn’t be eliminated entirely from the enterprise because other applications would be using it.

Furthermore, selling the SAP application to existing Sybase-only customers is unlikely to be significantly affected by the acquisition. The Sybase database sale is a very technical one, the key customer contacts are the CTO and the database specialists. Contact with these people will not give SAP the links to the senior executives to whom SAP would try to sell the application.

And SAP already has a database for customers that don’t have or want one from the leading three vendors – it is called MaxDB and is based on technology developed by … Software AG. MaxDB is actually a modified version of SAG’s ADABAS D database, licensed by SAP. So there are big opportunities here for cost synergies and for modifiying MaxDB even more to meet SAP’s requirements. ADABAS D should not be confused with ADABAS, another SAG database, and another leading technology that is closely linked to SAG’s Natural programming language.

An issue with the SAP application that many customers raise is the difficulty to integrate it with other applications. Many customers have to buy middleware, business process management (“BPM”) and other similar technologies to facilitate this integration. SAG bought webMethods in 2007, a company that produces middleware of the same name. SAG has also recently bought IDS Scheer (which created the ARIS enterprise modeling approach) giving it even more presence in the BPM market, and also a presence in SAP consulting. With webMethods and IDS Scheer, SAG presents a bundle of technology that SAP needs and can’t find in plenty of other companies as is the case with Sybase’s mobile technology.

So yes, at Vox Sapiens we believe that SAP has missed a trick. It should have bought Software AG.

4 comments

  1. […] is SAP aware of this? You bet. The Sybase acquisition, although strategically flawed, is just the first stage of a fat man defense to remain independent. We can expect further […]

  2. So it looks like SAP is going to buy Sybase, database vendor. But SAP is paying a lot of money for the company placed fourth in its main market.

  3. TheVoice says:

    Quick update. Today (June 11th, 2010) the Financial Times Deutschland reports that Software AG recognises that it would be a good acquisition target for SAP

    Karl-Heinz Streibich said that the Software-AG-Stiftung foundation, that owns 30% of Software AG, could be open to selling if the offer price was “outstanding” and the timing was good. He also said that Software AG would be a good fit for SAP.

    And this comes only a day after the SAP CEO stated that the company was on the lookout for bigger acquisitions.

    Original German story here:

    http://www.ftd.de/it-medien/computer-technik/:uebernahmeplaene-software-ag-dient-sich-kaeufern-an/50125030.html

    Software AG dient sich Käufern an

    Der Chef von Deutschlands zweitgrößtem Softwarehaus bringt sein Unternehmen selbst für Übernahmen ins Spiel – voraussgesetzt, es lasse sich ein “hervorragender Preis” erzielen. Das sorgt für neue Spekulationen über eine Konsolidierung der Softwarebranche …

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