My former employer, Business Objects, succumbed to its logical and natural ending yesterday, first announcing a short quarter, and then announcing its sale to SAP in a well valued transaction worth $6.7B.
Here is some of my perspective on the deal:
- I left Business Objects in 2004, after we had successfully acquired and integrated Crystal Decisions. During the peak of that hype the stock was nearly $40. Since then, the stock has largely bounced between $20 and $40. Not bad if you’re a trader, buying the twenties and selling the forties, but — given that they’ve nearly doubled the company (largely through acquisitions) since then, you’ve had expected the stock to do more than this sort of sideways bouncing thing.
- Financially, Business Objects (BOBJ) has always had trouble with margins. Top-class enterprise software operating margins run from 30 to 40%. Of late, BOBJ has had margins of around 9%. Frankly, given what I have always perceived as a lot of waste, I’ve never understood why they couldn’t have improved operating margins into the 20% range, particularly when organic growth slowed down (and I’m told they’ve been slashing the marketing budgets).
- Valuation-wise, I think it’s a pretty good deal for BOBJ. Run-rate revenues are around $1.45B. The deal is worth about $6.7B, meaning a valuation of nearly 5 times sales.
- My guess is what makes the relatively high valuation work — given the 20%-ish growth rate — is margins. First, I’m thinking that if operating margins were 25% then the stock might have been at 55-something already. Second, I’m betting that SAP thinks they can fairly easily improve margins and that’s helping to justify the price tag. I think they’re right.
- I think that Business Objects, and the whole BI industry, suffered from a lack of vision in the past few years. From the outside, it seemed like innovation stopped and acquisitions became the only way to drive growth. And the acquisitions, with the exception of a few (e.g., the BOBJ Inxight deal), themselves seemed to lack vision, and were more about consolidating positions and market share, than expanding the vision of the category.
- A lot of this goes way beyond BOBJ into enterprise software in general. As enterprise software consolidates in a multi-layer way (BOBJ itself had bought scores of companies over the years), it seems that a company better be (1) big or (2) visionary/disruptive. There seems to be little room in the market for a company that’s mid-sized, with interesting technology, but competing in a category where the big guys have serious entries (e.g., Cartesis). Increasingly, $1B doesn’t qualify as big. So I think BOBJ was finding itself in the same nether-zone as many of the companies it had acquired.
- I think the Euro/Euro aspect of this deal and think it bodes well for cultural integration. While I know that BOBJ is a lot less Euro than it was when I was there, roots run deep.
While I hate to be non-controversial, my net opinion is that it’s a good, logical, win/win, deal and a happy and natural ending to the success story that was Business Objects.
Felicitations to BOBJ — be sure to throw the bouquet to Cognos (who seems a logical, and much rumored target of IBM) at the reception.