The purchase of Business Objects SA brings into light an increasingly competitive market segment known as business intelligence.
Business-intelligence software lets big organizations extract and analyze data from disparate sources simultaneously - from employee-generated reports and the accounting department, for example. Companies and governments use the software to model complex marketing campaigns or staffing decisions.
While such software has existed for a while, vendors are now offering products aimed at solving specific problems, like regulatory compliance or financial consolidation, said Daniel Sholler, a research vice president at Gartner Inc.
The resulting growth has made business intelligence hot for investors and for larger software companies looking to expand their product portfolios. Analyst firm IDC says the worldwide market for business-intelligence software expanded by 11.5 percent to $6.25 billion (4.44 billion EUR) last year.
The Business Objects deal was striking because big acquisitions are unusual for SAP. But other business-intelligence players already had been snapped up, notably Hyperion Solutions Corp. in a $3.3 billion (2.34 billion EUR) deal this year by SAP rival Oracle Corp. And analysts expect more consolidation to follow.
Among the possible targets: Cognos Inc., MicroStrategy Inc. and possibly even privately held SAS Institute Inc. Expectations pushed Cognos shares up $4.48, or 10 percent, to $48.93 in afternoon trading Monday. But MicroStrategy fell $1.09, or 1.4 percent, to $79.79 after rising more than $2 earlier in the day.
Among the possible buyers: IBM Corp. and Hewlett-Packard Co., which offer some business-analysis tools but also rely - as had SAP - on companies like Cognos, SAS and Business Objects as partners. Another suitor could be Microsoft Corp., which last year acquired ProClarity Corp. to augment its business-intelligence technologies.
"The reign of the standalone business intelligence vendor - that's definitely something that's no longer viable," Sholler said. "It's been our contention that all these guys have been in play for a while, and this just turns up the heat."
Many analysts had been expecting SAP to do something to counter Oracle's pickup of Hyperion, because Hyperion specializes in selling tools to complement SAP's own software.
But Business Objects may not be an easy fit for SAP as it tries to more than double its base to 100,000 customers by 2010.
One wrinkle is that most of Business Objects' technologies overlap with analytic products SAP already has in its NetWeaver line. Analysts said SAP could expect tough questions from customers about how the product lines would blend.
Also, in announcing the acquisition late Sunday, SAP said it would keep Business Objects as a standalone unit, at least for now. That could make it hard for SAP to squeeze enough savings out of the combined companies for the deal to be a financial plus fast enough to satisfy investors.
Goldman Sachs analyst Mohammed Moawalla said the purchase may stretch SAP, given its limited acquisition experience.
SAP's U.S. shares took a 5.5 percent dive Monday, down $3.26 to $55.97. Business Objects jumped 14 percent, or $7.17, to $57.44 but remained short of the 42 euros, or $59.35, per share that SAP has offered, for a total of about $6.8 billion (4.83 billion EUR).
Another potential risk is that Business Objects just reported disappointing sales in its third quarter, although its profits jumped 34 percent in the first half, and its revenue leaped 22 percent, to $698 million (495.42 million EUR).
"I think it's a strange deal," said Paul Hamerman, a vice president at Forrester Research. "It's totally out of character for SAP. I think it signals a new direction for them to accelerate their growth through acquisition."