Investor's Business Daily, March 1st, 2007
Oracle knocked over the first big domino in a major business software market on Thursday, announcing an agreement to buy Hyperion Solutions for $3.3 billion. Investors now must wonder which business software merger will be next.
Oracle's ORCL bid comes to $52 a share, 21% above Hyperion's HYSL closing price on Wednesday.
Hyperion makes business intelligence software, products that company's use to strategically get the most out of all their data. The Oracle deal puts new pressure on Hyperion's main rivals, Business Objects BOBJ and Cognos COGN.
Both are likely takeover targets, and more deals are almost certain to follow, says Bruce Richardson, an analyst with AMR Research.
"This is a buckle-your-seat-belt situation," he said. "There's a lot more to come."
Industry watchers have predicted a shakeout in the hot BI sector, which recorded total revenue of some $23 billion last year. The software is used to gather, sort, analyze and present business data to corporate and other enterprise users.
Santa Clara, Calif.-based Hyperion is known for BI software that is focused on budgeting, planning and financial consolidation. This acquisition, which Oracle hopes to complete in April, pushes the database king further along its goal to grow through mergers and acquisitions. It also shrinks the business software field in terms of vendors.
Oracle has spent more than $22 billion since early 2005 acquiring such companies as PeopleSoft and Siebel Systems. In amassing such a large software portfolio, Oracle hopes to increase its sales faster than it increases its expenses.
Over time, this tactic could drive its gross profit margins to 50% or more, predicts Peter Goldmacher, a Cowen & Co. analyst. He rates Oracle stock as outperform, or buy.
"Wall Street continues to underestimate Oracle's M&A strategy," he said. "By buying relatively large vendors, it is putting itself in extremely strong position to grow."
The Hyperion deal is aimed at SAP SAP, Oracle's main rival in business applications. Unlike Oracle, SAP has pursued an organic growth strategy. It's made only a handful of small acquisitions in recent years.
The Hyperion bid is Oracle's latest move to expand offerings to SAP customers, says Oracle President Charles Phillips. "Oracle's Hyperion software will be the lens through which SAP's most important customers view and analyze their underlying SAP ... data," Phillips said in a statement.
More than half of Hyperion's customers are also clients of SAP, analysts say. "Oracle calls this their 'wedge strategy' to get into SAP accounts," Richardson said. "It gives Oracle a way to build relationships with all those SAP customers."
Hyperion also gives Oracle more software products aimed at chief financial officers. Oracle sales have been aimed mostly at chief information officers and information technology managers, says Ray Wang, a Forrester Research analyst.
"Essentially, this gives Oracle the ability to sell into a new base of customers," Wang said.
Possible buyers of Business Objects, Cognos or other business software vendors include IBM IBM, Microsoft MSFT, Hewlett-Packard HPQ or even SAP, analysts say. Potential targets include Informatica INFA, MicroStrategy MSTR and SPSS SPSS. Privately held BI firms include SAS Institute, Information Builders and Cartesis.
Business Objects and Cognos say the Hyperion deal strengthens their positions. Business Objects plans to remain independent, says Keith Gile, a senior strategy adviser at the company.
"We think the independent card is still a strong card to play," Gile said. "We don't care about dominoes. We're going to be a bigger player on our own."
Cognos spokesman Les Rechan, in a statement, said the loss of a top competitor presents "a significant new opportunity."
But in November, Cognos Chief Strategy Officer Rob Rose said in an interview with IBD that the first big BI merger would likely trigger a full-blown market shakeout.
"If one of the big BI firms goes, they all go," Rose said. "One potent (merger) combination would ... leave the remaining independent vendors looking weaker."
Copyright 2007 Investor's Business Daily, Inc.
