SAP has made no secret of its willingness to make acquisitions to fill the gaps in its portfolio and says it is willing to pay up to $1 billion per deal for prospective companies in its target vertical markets of banking, retail, and public sector. The announcement ratchets up the battle for supremacy in the vertical IT field between SAP and acquisitive rival Oracle.
SAP’s CEO has reportedly claimed the company is prepared to spend up to $1 billion on M&A deals.
SAP’s CEO Henning Kagermann told the Financial Times that although the company is aiming for organic growth, it is prepared to buy in order to gain expertise in certain areas.
It tried to acquire retail software supplier Retek in March in order to increase its footprint and its capability in the retail market but was thwarted by Oracle during a short bidding war when Oracle topped SAP’s final $629 million offer. It has yet to make overtures in the banking sector but this is likely to change given its belief, based on a joint survey carried out with partner Accenture, that one-third of the institutions within banking sector will replace their IT systems over the next five years. SAP and Oracle are both targeting retail and banking as strategic verticals.
SAP is falling behind Oracle as far as acquisitions are concerned because not only did Oracle beat it to Retek, it is also in the process of acquiring a controlling stake in the market-leading banking software and service supplier i-flex Solutions. SAP has not countered with equivalent moves, but the amount it is prepared to pay for a single acquisition is an indication that it is serious but will not be panicked into a transaction.
Both vendors are stepping up their vertical market activities because this is one of the few remaining growth opportunities left to high-end players. While they both want to dominate the total market, they have acknowledged that much of the battle will be carried out within verticals and sub-verticals.
SAP and Oracle employ different vertical sector go-to-market strategies. Whereas SAP has historically offered industry verticalization and is looking to further this via a combination of organic growth and growth by acquisition, Oracle is a comparative latecomer to the vertical cause and is focusing on acquisitions as the route forward. It is making more deals at the moment but it is also starting from a comparatively shallow vertical position. SAP has more depth but needs to work to maintain its competitive position.