Analysis: Business Objects Will Stand Alone Under SAP's WingAnalysis: Business Objects Will Stand Alone Under SAP's Wing

In a deal described as a "friendly take over," SAP and Business Objects announced on Sunday that the German enterprise applications giant will acquire the top business intelligence software vendor for approximately 42 Euros per share, or about $6.8 billion at current exchange rates. The companies said Business Objects will continue to operate as a stand-alone company under the SAP Group, but plans call for joint development toward "application alignment for business analytics."

“The combination of SAP and Business Objects in their respective domains will benefit customers, prospects, partners, employees and shareholders,” stated Henning Kagermann, CEO of SAP AG. “The acquisition of Business Objects is in keeping with SAP’s stated strategy to double our addressable market by 2010 as announced in 2005… SAP can now take the opportunity to focus on the industry’s next high-growth opportunity, by accelerating and enhancing our efforts for the Business User category.”

With much of the business intelligence community seeing the fastest growth in "operational BI" and performance management, it's no surprise that SAP would want to acquire Business Objects, but the deal comes in the wake of two smaller acquisitions by SAP of Pilot Software, an analytics vendor acquired in Feburary, and Outlooksoft, a performance management vendor acquired in May.

Those deals were outclassed by Oracle's $3.3 billion purchase of Hyperion, finalized this summer, but the addition of Business Objects will certainly tip the scales in the other direction. SAP stands to control not only the industry's largest business intelligence vendor, with revenue of $1.25 billion last year, but it will also gain Cartesis, the European performance management vendor acquired by Business Objects in April.

A joint SAP-Business Objects press release said that together, the two companies will develop "new, innovative offerings of enterprisewide business intelligence solutions along with embedded analytics in transactional applications." For example, SAP said expertise and solutions from Business Objects would be complimentary to SAP offerings in categories including Governance, Risk and Compliance; business intelligence in the SAP platform; and corporate performance management capabilities, "including those recently added through tuck-in acquisitions from OutlookSoft and Pilot Software." Underscoring the plan to let Business Objects operate as an independent company but to pursue joint development, the release said that the two companies will "share" executives. Plans call for John Schwarz to continue to serve as the CEO of the Business Objects entity while, subject to the closing, SAP intends to elect Business Object founder Bernard Liautaud to the SAP Supervisory board. Until that time, Liautaud will have an advisory role to Henning Kagermann on aspects of strategy and integration.

“The combination of Business Objects and SAP means that we can truly amplify the reach of Business Intelligence — from the C-suite to Main Street," stated Liautaud. "John Schwarz and I are excited to see the innovation and hard work of our employees and partners validated and soon extended by the portfolio, domain expertise and presence of SAP.”

Whether the Business Objects portfolio can be sensibly integrated and otherwise reconciled with Outlooksoft and Pilot (let alone Cartesis, which has yet to be fully integrated) remains to be seen. The overlaps with SAP's own BI capabilities and analytic applications add yet another layer of complexity to the combination. And there's also the competitive wrinkle of Business Objects 2007 aggressive push into midmarket BI, advanced just today with the release of the Premier edition of what is now called "the Edge Series" (formerly Crystal Decisions). That will surely complicate SAP's Duet partnership with Microsoft.

Given all the potential complications and the sheer scale of the SAP and Business Objects portfolios, dancing together at arms distance (with the BI vendor remaining a stand-alone business) seems like the only sensible way forward.