The Year in Review and a Look Ahead: M&A, IPOs, and Breaking a Million
Friday, December 14, 2007
Bruce Richardson
Welcome to the last edition of First Thing Monday for 2007. It’s hard to believe that another year has raced past. Looking back, 2007 has been a great year for Red Sox fans (and South Africa rugby fans, our Roddy Martin reminds me), and should prove to have been a very strong year for the software industry. When we published our 2007 forecast for enterprise applications, we were looking for this market to grow to $61.1B, an 8% increase from last year. That forecast looks pretty safe.
Next year should be strong, too. Our preliminary 2008 estimates show that total enterprise application revenue should reach $65.4B, up more than 7% from the current year.
Business intelligence deals yield another strong year for software M&A
According to Mergerstat, there were 1,206 software mergers and acquisitions in the first nine months of this year. This is down 7% from the 1,293 deals reported for the first three quarters of 2006. If you’re an investment banker, you made more money this year as the value of the deals for the same period this year tallied $62.8B, up 11% from the $56.4B total for the first three quarters of 2006.
The big software M&A news was the purchase of the Big Three business intelligence (BI) vendors. In March, Oracle acquired Hyperion for $3.3B; in October, SAP bid $6.8B for Business Objects; last month, IBM made a successful offer of $5B for Cognos.
The next question is likely to be “Which company or sector is next?” I’ll decline your offer to name companies, but I will say that I see further consolidation in infrastructure and human capital management (HCM). We could still see an Oracle/BEA deal, or even a Hewlett-Packard/BEA combo. In addition, some of the vendors hovering around the service-oriented architecture (SOA) space are starting to get more attractive as SOA begins to creep into large ERP accounts. There’s not a lot of blockbuster potential, though.
As for HCM, Oracle and SAP are trailing some of the new-wave HCM providers in functionality and sex appeal. This sector appears to be one of the last safe harbors for best-of-breed vendors, at least for now. SuccessFactors and Taleo have each built a customer base of 1,400 companies with performance management and talent management functionality.
As I write this, SuccessFactors’ market cap is close to $735M, while Taleo’s is just above $712M. Taleo is closer to the $100M annual revenue mark, with $77M in revenue for the first three quarters versus $44.1M for SuccessFactors. Both offer their products as software as a service (SaaS). We could see one or both acquired over the next 12 to 24 months. As we were writing this, SAP (through the NetWeaver Fund) was investing in Montreal-based Nakisa, a user interface company specializing in organizational and talent management information visualization (see Christa Degnan Manning’s note below in Market Roundup for more on this).
Longer term, I’m waiting for the first batch of consolidation among the IT services and business process outsourcing (BPO) vendors. Given the high cost of new customer acquisition and the ongoing battle for scarce talent, consolidation appears inevitable. This will take longer to play out, though, thanks to high market valuations, especially for the leading firms in India. As I write this, Infosys is valued at $25B, followed by Wipro ($22.8B), and Satyam ($9B). I couldn’t find a market valuation for Tata Consultancy Services (TCS). TCS is the largest of all of the Indian services firms. This compares to $21B for Accenture, $11.13B for EDS, and $9.9B for Cognizant.
Door to IPO market slightly ajar in 2007
The IPO market opened up again for a handful of select software companies. The must-have new tech stock for 2007 was VMware. When the company made its debut on the New York Stock Exchange in August, the opening share price was $29. The stock closed the first day of trading at $51, giving VMware a market cap of $19.1B. Since then, shares have traded as high as $125.25. Currently, the shares are hovering just below $100, giving the company a valuation of $37.9B. Very nice.
DemandTec also went public in August, opening on a day when the Dow had experienced the “the second-heaviest one-day plunge since 2003,” falling 387 points. Shares of DMAN opened at $10.05, but fell to $9.34 by the end of the first day. Since then, shares have traded between $8.95 and $20.50. The shares are currently trading just under $15.
If DemandTec shareholders also bought Deltek shares when they debuted on November 1, they must have experienced déjà vu. On Deltek’s first day of trading the NASDAQ finished down 64.29 points, the Dow dropped 362.14, and the New York Stock Exchange fell 289.53. Deltek opened trading at $18.00 and closed at $17.95. In the past six weeks, shares of PROJ (Deltek specializes in project-based ERP software) have traded in a relatively narrow band—$15.01 to $18.63, with the current price at $17.20.
SuccessFactors went public last month just before Thanksgiving. Shares of SFSF opened at $10 and rose to $13.25 to end the day. Since then, shares have reached a high of $15.27. It’s trading at $14.75 now.
NetSuite should be the fifth and final enterprise software IPO for this year. On December 10 the company announced an offering of 6.2 million shares of stock at a suggested price range of $13 to $16 per share. Bidders will determine the actual price through an online auction or “Dutch auction” process. Pricing is expected to close December 19.
The fact that I’m excited about five IPOs doesn’t make me forget the craziness of the first Internet bubble. I saw a stat the other day that reminded me that more than 1,100 technology companies had their IPOs during the 1995 to 2000 mania. Now, that was the time to be a banker.
“Million” is the new black
The “new black” analogy is thoroughly overused. I am noticing, however, how many software companies have hit the coveted one million mark. Salesforce.com recently reached one million subscribers. One week later, SAP touted that its Community Network membership had topped one million. SuccessFactors and Taleo brag that their software is used by two million employees and one million employees, respectively, at their corporate customer accounts.
Next year’s theme: convergence of enterprise apps and social networks
Like you, every day I get multiple invitations to join friends on Facebook, LinkedIn, and Plaxo. In the past two weeks, I have also been asked to join Hi5 Networks and Spock.com. Smart companies are looking at social networks and seeing new prospecting and hiring opportunities. They are also looking to use these tools to build tighter links to a wide range of communities, from shareholders to suppliers.
A few months ago, I wrote that salesforce.com is looking to become the “Facebook of the business world.” Last month I wrote about Faceforce, a new tool that links information from your Facebook profile and network to salesforce.com’s software. This could be a little creepy if abused or overused, but I have the power to limit access to my Facebook profile.
A few weeks ago salesforce.com announced Salesforce to Salesforce, the world’s first “multi-tenant business network.” Some of the initial customers are using this technology to connect directly to their reseller networks to share and track leads in real-time, plan and update marketing campaigns, track orders, and share other functions and processes. The intent is to reduce the latency from suspect-to-prospect-to-customer and eliminate any and all manual processes. Rob Bois goes into detail about this below in Market Roundup. The next step should be to layer salesforce.com’s IdeaExchange on top to allow the channel master to solicit ideas for new features and functions or improvements to the indirect channel program.
In the not-too-distant future, I suspect that we will see a Facebook-like application from salesforce.com that will be used to replace static employee intranet sites, extend out to key customers (like a social network site for your major accounts), or provide pages for the sales and service members of key suppliers.
Why? Facebook envy. Even though salesforce.com has reached the one million mark, I suspect that CEO Marc Benioff won’t be happy until he approaches LinkedIn’s 17 million connections or Facebook’s 60 million friends.
Back to goofy company names
Remember the last bubble when it seemed that the name of nearly every startup either began with a small “e” or started with a letter from the end of the alphabet, like V, X, Y, or Z? Ever find yourself confused as to whether Meebo is a new prescription drug or an instant messaging tool? Are you current on all of the new Web 2.0 players? If not, and you have a couple of minutes, here’s a quiz for you.
Coming up: What lies ahead for i2 Technologies?
It’s been over a year since I last met with Sanjiv Sidhu, i2’s founder and chairman, and Mike McGrath, former CEO. We recently flew to Dallas to catch up with Mr. Sidhu and Dr. Pallab Chatterjee, interim CEO. Look for our analysis after the holidays on January 7.
In the meantime, all of us at AMR Research want to offer our best wishes for a safe and happy holiday season. Here’s to a healthy and prosperous 2008! While we won’t be publishing for a couple of weeks, we will still be looking for your feedback and ideas—brichardson@amrreseach.com.
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© Copyright by AMR Research, Inc.
Showing posts with label Business Intelligence. Show all posts
Showing posts with label Business Intelligence. Show all posts
Friday, December 14, 2007
Monday, October 08, 2007
FT.com / Companies / Europe - SAP signals hunger for deals
FT.com / Companies / Europe - SAP signals hunger for deals
SAP signals hunger for deals
By Gerrit Wiesmann in Frankfurt and Pan Kwan Yuk in Paris
Published: October 8 2007 20:20 | Last updated: October 8 2007 20:20
Germany’s SAP, the world’s largest maker of business software, Monday signalled it could look at further acquisitions even as its departure from an avowed strategy of organic growth sent investors running for cover.
Outlining an agreed takeover offer worth €4.8bn ($6.7bn) for Franco-American software house Business Objects, SAP chief executive Henning Kagermann said SAP was on its “way to proving we can make larger acquisitions”.
The company’s announcement late Sunday that it was buying the market leader in programmes to collect and sift corporate data knocked 4 per cent of SAP stock in trading Monday.
The shares closed at €39.95 in Frankfurt.
Investors were rattled because Mr Kagermann had for years underlined SAP’s superiority to US rival Oracle by pointing out the German company was focused on organic growth – not dealmaking.
To catch SAP, Oracle has spent billions on buying rival makers of central business programmes as well as end-user suppliers such as Hyperion, a Business Objects rival, it bought for $3.3bn (€2.3bn) this spring.
But at a press conference in Frankfurt, Mr Kagermann said the largest acquisition in SAP’s history was not a reaction to Oracle.
“We have not seen … that Oracle is gaining market share,” he stressed.
He said the move was consistent with SAP’s strategy outlined as far back as 2003. Having “done our homework” in its two core sectors, which would still grow organically, SAP now had time to look at end-users’ needs.
As demand for traditional manufacturing and supply-chain management slows, SAP said that sales of business analysis software were growing at around 10 per cent per year from current annual sales of about €10bn.
In buying Business Objects, SAP would be able to offer its clients more integrated features, Mr Kagermann said, stressing that demand for such end-user features would likely continue to rise over the next years.
“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.”
SAP has spent the past years reinventing its so-called business process platform, the nervous systems of companies’ IT systems, and making a foray into the market for mid-sized companies, which critics argue came late.
Copyright The Financial Times Limited 2007
SAP signals hunger for deals
By Gerrit Wiesmann in Frankfurt and Pan Kwan Yuk in Paris
Published: October 8 2007 20:20 | Last updated: October 8 2007 20:20
Germany’s SAP, the world’s largest maker of business software, Monday signalled it could look at further acquisitions even as its departure from an avowed strategy of organic growth sent investors running for cover.
Outlining an agreed takeover offer worth €4.8bn ($6.7bn) for Franco-American software house Business Objects, SAP chief executive Henning Kagermann said SAP was on its “way to proving we can make larger acquisitions”.
The company’s announcement late Sunday that it was buying the market leader in programmes to collect and sift corporate data knocked 4 per cent of SAP stock in trading Monday.
The shares closed at €39.95 in Frankfurt.
Investors were rattled because Mr Kagermann had for years underlined SAP’s superiority to US rival Oracle by pointing out the German company was focused on organic growth – not dealmaking.
To catch SAP, Oracle has spent billions on buying rival makers of central business programmes as well as end-user suppliers such as Hyperion, a Business Objects rival, it bought for $3.3bn (€2.3bn) this spring.
But at a press conference in Frankfurt, Mr Kagermann said the largest acquisition in SAP’s history was not a reaction to Oracle.
“We have not seen … that Oracle is gaining market share,” he stressed.
He said the move was consistent with SAP’s strategy outlined as far back as 2003. Having “done our homework” in its two core sectors, which would still grow organically, SAP now had time to look at end-users’ needs.
As demand for traditional manufacturing and supply-chain management slows, SAP said that sales of business analysis software were growing at around 10 per cent per year from current annual sales of about €10bn.
In buying Business Objects, SAP would be able to offer its clients more integrated features, Mr Kagermann said, stressing that demand for such end-user features would likely continue to rise over the next years.
“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.”
SAP has spent the past years reinventing its so-called business process platform, the nervous systems of companies’ IT systems, and making a foray into the market for mid-sized companies, which critics argue came late.
Copyright The Financial Times Limited 2007
FT.com / Companies / IT - SAP buys Business Objects for €4.8bn
FT.com / Companies / IT - SAP buys Business Objects for €4.8bn
SAP buys Business Objects for €4.8bn
By Gerrit Wiesmann in Frankfurt and Lina Saigol in London
Published: October 7 2007 21:55 | Last updated: October 8 2007 00:07
Germany’s SAP on Sunday night launched a €4.8bn (£3.3bn) bid for Franco-American software maker Business Objects in what seems a departure from its long-term strategy to expand only organically and by smaller purchases.
The world’s largest maker of business software said it would offer €42 a share for the company, which specialises in business-analysis packages; a 20 per cent premium to Friday’s closing price in Paris.
The decision was seen as a response by SAP to a purchase by Oracle, its US archrival, which in March bought Hyperion, a smaller rival of Business Objects, for $3.3bn (£1.6bn).
SAP denied its agreed bid was a change of tack. Henning Kagermann, chief executive, said the company had bought interesting applications with “end-user appeal” before. SAP would continue to expand its core business organically.
In a conference call, he said that was consistent with SAP’s 2003 strategy statement. After changes to the main software platform, SAP was looking at individual applications.
Mr Kagermann said this opportunity to combine “market leaders in their respective domains” was “an opportunity unparalleled” in the German group’s history. He declined to give details of new products.
SAP said the move, financed by cash and debt, would go through if supported by 50.01 per cent of Business Objects’ shareholders. It hopes to close the transaction in the first quarter of next year.
The deal would mildly dilute earnings in the coming year, but boost profits in 2009 and beyond. “Financially and not just strategically, this is a good deal,” Mr Kagermann said.
It comes at a sensitive time for the German software maker. It is spending €400m to introduce software for small businesses, which will, for the first time, be hosted on the web by its own computer centres.
Copyright The Financial Times Limited 2007
SAP buys Business Objects for €4.8bn
By Gerrit Wiesmann in Frankfurt and Lina Saigol in London
Published: October 7 2007 21:55 | Last updated: October 8 2007 00:07
Germany’s SAP on Sunday night launched a €4.8bn (£3.3bn) bid for Franco-American software maker Business Objects in what seems a departure from its long-term strategy to expand only organically and by smaller purchases.
The world’s largest maker of business software said it would offer €42 a share for the company, which specialises in business-analysis packages; a 20 per cent premium to Friday’s closing price in Paris.
The decision was seen as a response by SAP to a purchase by Oracle, its US archrival, which in March bought Hyperion, a smaller rival of Business Objects, for $3.3bn (£1.6bn).
SAP denied its agreed bid was a change of tack. Henning Kagermann, chief executive, said the company had bought interesting applications with “end-user appeal” before. SAP would continue to expand its core business organically.
In a conference call, he said that was consistent with SAP’s 2003 strategy statement. After changes to the main software platform, SAP was looking at individual applications.
Mr Kagermann said this opportunity to combine “market leaders in their respective domains” was “an opportunity unparalleled” in the German group’s history. He declined to give details of new products.
SAP said the move, financed by cash and debt, would go through if supported by 50.01 per cent of Business Objects’ shareholders. It hopes to close the transaction in the first quarter of next year.
The deal would mildly dilute earnings in the coming year, but boost profits in 2009 and beyond. “Financially and not just strategically, this is a good deal,” Mr Kagermann said.
It comes at a sensitive time for the German software maker. It is spending €400m to introduce software for small businesses, which will, for the first time, be hosted on the web by its own computer centres.
Copyright The Financial Times Limited 2007
Monday, March 05, 2007
Hyperion Buy Will Add to Oracle BI and CPM Portfolio
Hyperion Buy Will Add to Oracle BI and CPM Portfolio
Hyperion Buy Will Add to Oracle BI and CPM Portfolio
5 March 2007
Bill Hostmann John E. Van Decker Nigel Rayner
Oracle's pact to buy Hyperion, a vendor of business intelligence and corporate performance management software, won't lead to major short-term product changes. But customers should ask for a road map once the deal closes.
Hyperion Buy Will Add to Oracle BI and CPM Portfolio
5 March 2007
Bill Hostmann John E. Van Decker Nigel Rayner
Oracle's pact to buy Hyperion, a vendor of business intelligence and corporate performance management software, won't lead to major short-term product changes. But customers should ask for a road map once the deal closes.
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