SAP Invades Silicon Valley via Acquisitions

SAP Invades Silicon Valley via Acquisitions

By Matthew Campbell and Aaron Ricadela on August 01, 2013

German software giant SAP (SAP), the 41-year-old maker of financial and supply-chain software, has been slow to shift to cloud computing and has struggled for years to catch up to U.S. competitors such as Oracle (ORCL) and Salesforce.com(CRM). Among other things, it’s broken some of its brightest engineers into startup-like teams far from its main campuses. While waiting for them to spawn new products, the company is doubling down on plan B, for “buyout.”As it struggles to upgrade its old server-confined software and move some of its 230,000 corporate clients to cloud-based subscription services, SAP has spent more than $12 billion on Silicon Valley takeovers since 2010. Last year, it picked up Sunnyvale (Calif.)-based procurement-software firm Ariba for $4.3 billion, along with San Mateo-based cloud-software maker SuccessFactors for $3.3 billion. In recent months it has considered deals for such companies as Palo Alto’s Jive Software (JIVE), which sells business-collaboration programs, say two people familiar with SAP’s plans who weren’t authorized to discuss them publicly. SAP and Jive declined to comment.

SAP’s dealmaking has been driven by its attempt to migrate to the cloud. American Co-Chief Executive Officer Bill McDermott (who will become the sole CEO next year, the company announced July 21) and Danish Co-CEO Jim Hagemann Snabe promised a new focus on development and acquisitions when taking over in 2010. “We’ll have the highest-performing cloud in the world,” McDermott said on a July 21 analyst call.

The company’s Palo Alto-based venture arm is also investing more than $700 million in tech startups. Co-founder and Chairman Hasso Plattner is the main shareholder of the San Jose Sharks—whose home ice changed its name from the HP Pavilion to the SAP Center on July 9—and has given more than $35 million to Stanford University. “They’ve really gone all in and placed a very big bet on Silicon Valley,” says Simon Pearson, who advises on tech deals for Ernst & Young.

The company’s $6.8 billion 2007 deal for French data-analysis-software maker Business Objects gave management and investors confidence it could use big buyouts to take development shortcuts, says Ray Wang, an analyst at Constellation Research. “That was a turnaround in their thinking,” Wang says. “They would never have gotten where they are without Business Objects.” McDermott and Snabe’s first big Valley deal came in 2010 with the $5.8 billion takeover of Bay Area database maker Sybase.

SAP isn’t yet a dealmaking machine like Oracle, which has spent more than $50 billion on a string of about 100 acquisitions since 2005. The company has also struggled to incorporate some purchases; SuccessFactors CEO Lars Dalgaard, appointed to head SAP’s cloud-computing development, left in May. “When you try to copy the momentum of these new companies you bring in, it’s difficult,” says Thomas Becker, who heads tech research at Commerzbank.

SAP is counting on smoother integration of its acquisitions as it dukes it out with Oracle, Salesforce, Microsoft (MSFT), andIBM (IBM). In June, Oracle publicly struck deals with Microsoft and Salesforce to make their products more compatible. Against the home-field advantage of its rivals, SAP has little choice but to keep searching for acquisitions, says Patrik Kärrberg, who researches innovation at the London School of Economics. SAP’s recent timetable of one large deal every 12 to 18 months suggests it is likely to announce another by yearend. “European companies need to buy themselves into the show,” Kärrberg says.

The bottom line: SAP is spending aggressively to bolster and modernize its business software for the cloud.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

One Response to SAP Invades Silicon Valley via Acquisitions

  1. Aurther says:

    Thank you for the financial post

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