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FT.com / Companies / Europe - A new mantra to explain SAP purchase

A new mantra to explain SAP purchase
By Gerrit Wiesmann

Published: October 8 2007 20:20 | Last updated: October 8 2007 20:20

Having spent years stressing organic growth over the acquisitive strategy of arch-rival Oracle, the departure of German business-software maker SAP from its big corporate mantra proved surprisingly matter-of-fact.

But, as so often with Henning Kagermann, chief executive of the world’s largest maker of business software, it was not so much that he was changing tack – the world was at last beginning to understand things he said all along.

The €4.8bn ($6.7bn) agreed takeover offer for Franco-American software group Business Objects was entirely consistent with SAP’s goals to grow in three sectors, Mr Kagermann said in Frankfurt.

Organic growth was – and would remain – the mantra for the two areas that had been the focus of attention for the past four years: revamping the software backbone that all companies need, and luring smaller businesses.

In both areas, buying other companies made no sense because SAP was a clear market leader and so confident about its technological leadership that it saw no need for any outside help, SAP’s chief executive explained.

But, apparently forgotten by everyone, except Mr Kagermann, was SAP’s third ambition: to diversify from supplying software backbones, so-called business-process platforms, to selling programmes for end-users. And this, Mr Kagermann implied, had al­ways been a very different pro­position. So-called “business user solutions are very different”, he said, noting that this market is growing and consolidating extremely quickly.

“We have some innovation and know-how [in this field], but we have to accept that there are other [market] leaders,” he said, noting a slew of smallish companies that had long focused on addressing specialised user needs.

“People expect us to embrace the latest and coolest technology,” Mr Kagermann said. That’s why SAP decided it would be better quickly to buy in potential big sellers rather than start time-consuming development.

One of these is compiling and sifting through corporate data to improve performance. According to SAP, Business Objects is the clearleader in this market with annual sales of €10bn and yearly growth of 10 per cent.

Mr Kagermann said adverse reaction by investors – SAP stock fell 4 per cent to €39.95 – had more to do with the fact that “the market is not educated” than with any inconsistency at SAP. It would in time come around.

SAP had in past years al­ready bought software makers Virsa and OutlookSoft to offer its customers, respectively, in­tegrated programmes to check legal compliance and assess corporate performance. But in spending $200m on OutlookSoft, for example, SAP long made these moves look part of a pocket-money fin­anced sideshow that would not lay claim to corporate res­ources to any noticeable extent.

Having announced a deal 34 times bigger than the OulookSoft move this spring, Mr Kagermann strongly hinted that the time of trifling “fill-in acquisitions” had ended, presaging fill-in purchases easily above the billion mark.

SAP had proven it could grow organically and that it could innovate. “Now we are on our way to proving that we can make larger acquisitions,” he said, declining to name what fields are next.

“There are other areas in which such a move would make sense,” Mr Kagermann said, noting that ever more companies wanted integrated software “But [the acquisition of Business Objects] is by far the most important.”

Copyright The Financial Times Limited 2007