By Krishna Roy There is a maxim that’s adopted by many companies planning an M&A strategy: do not negotiate a new transaction when there are still ongoing issues hanging over an earlier deal. It can be a prescription for disaster. Further acquisition activity, at a time when some previous transaction has not been fully assimilated […]
By Krishna Roy
There is a maxim that’s adopted by many companies planning an M&A strategy: do not negotiate a new transaction when there are still ongoing issues hanging over an earlier deal. It can be a prescription for disaster. Further acquisition activity, at a time when some previous transaction has not been fully assimilated can throw up fresh technology integration problems, engender additional restructuring issues, create turmoil within the sales force, and precipitate an employee exodus.
Hyperion Solutions does not subscribe to this rule. Although still dealing with year-old merger-related problems arising from the $350m acquisition of Arbor Software (see the earlier report Hyperion Still Suffering Indigestion Post-Arbor), the analytical applications and OLAP engine supplier last month chose to continue down the acquisition route. It paid $15.5m in the cash purchase of Sapling, a small privately held Canadian balanced score card and activity planning vendor.
Although the deal only became public mid-May 1999, the negotiation cogs had been turning since September 1998, just three months after it had completed the Arbor purchase. However, post-Arbor digestion problems including a top level management exodus and a contractual hitch are believed to have delayed the announcement, which was originally intended for the company’s annual user conference in October 1998.
The timing may not be perfect, and if not handled carefully could only add to Hyperion’s current Arbor-related woes. But it does fits well with Hyperion’s strategy to find a new revenue generation engine at a time when sales within its core business intelligence market are certain to fall well below original revenue projections. The market for enterprise performance management software in which Sapling is a key player is expected to see unprecedented growth in the next few years, representing a $1.6bn opportunity by 2002, up from $700m to $800m today, according to Hyperion executives.
This acquisition is a tactical decision designed to allow the Hyperion channel to have something new and exciting to sell into the customer base. Balanced scorecard and similar methodologies seem to be getting a lot of airplay out there and Hyperion sales people can leverage that. These products also sell well to the non-IT types Hyperion has traditionally dealt with, says Mike Norman, a data warehousing specialist and ComputerWire analyst.
Activity based costing, the piece of the enterprise performance management pie on which Sapling built its 17-year-old business, is a hot market which is increasingly being viewed as a core component of an enterprise software suite. Such packages enable financially oriented business users to gain a perspective on the earnings per share growth of the business, for example, using data gathered from the back-end financial, manufacturing and HR components of the business.
In the last 12 months enterprise software players have been adding activity based costing components to their application suites through acquisition or investments. Oracle purchased Activa while SAP made an equity investment in ABC Technologies to deliver these capabilities to market. Lawson Software also began introducing activity-based costing modules, as has PeopleSoft.
However, aside from Gentia and Corvu, Hyperion is the only other business intelligence tools vendor to have entered this market. Furthermore, it claims to offer a superior offering to those currently underway at ERP companies because its applications suite is agnostic to the ERP backbone – Lawson, PeopleSoft, SAP and Oracle have tried to integrate the activity-based costing modules with each respective back-end platform.
Hyperion argues that this strategy is both limiting and ill conceived. SAP’s investment in ABC has produced a war room approach to activity-based costing because only a select few managers have access to the system. Therefore business views are limited and often contradictory because the data views are not consistent across
the board, says Rich Clayton, senior director of product marketing at Hyperion.
Oracle’s approach is incomplete too, he argues, since its activity based planning software does not integrate with its Oracle Express OLAP engine. Hyperion claims it will be able to offer an integrated suite of tools that can use Sapling tools and its Essbase OLAP engine to run performance management against all the major ERP systems, customer relationship management applications, financial data and HR systems. NetScore will provide the performance measurement/balanced score card component while NetProphet will be used to model and analyze the operational data.
Unlike many of Hyperion’s analytical applications that are still not integrated with Essbase NetScore and NetProphet are closely tied to the OLAP Essbase engine, say analysts. NetScore was written to run on Essbase and NetProphet was converted to run on Essbase a year or two ago. The customer base is in the process of being converted to the Essbase version [the original database was proprietary]. So there shouldn’t be any conflicts with Sapling and Hyperion partners, products or people, says Nigel Pendse, an OLAP analyst.
NetProphet will be renamed Hyperion Activity Based Management while NetScore will be renamed Hyperion Performance Management. Both products will be sold as part of its analytical tool suite, which currently includes Pillar, Spiderman and Wired for OLAP, as well as standalone products.
Although both Sapling products interoperate with Essbase the integration between Hyperion applications and Essbase isn’t sufficiently tight for users to directly leverage computational logic executing inside the Essbase Server as part of a balanced scorecard application, according to Norman.
Sapling, which grew out of a consulting business has 300 customers. Hyperion will retain Sapling’s headquarters in Canada where some 70 developers are mainly based. The operation will be the center of Hyperion’s performance management initiative. The company also has a big services division that Hyperion intends to leverage. Andersen Consulting is said to have some 200 consultants dedicated to the implementation of activity-based costing projects based around Sapling Software.