Oracle Corp has announced a $3.3bn cash offer to buy corporate performance management software maker Hyperion Solutions Corp, a move that will strengthen its position in the business intelligence software market and give it access to rival SAP AG’s customer base.
Oracle will pay around $52 per share in cash for Santa Clara, California-based Hyperion. That’s a 21% premium over Wednesday’s closing price of Hyperion’s stock. Over the past year the stock has traded between $26.65 and $45.18.
If the deal passes all the customary regulatory hurdles then it will close as early as April. Oracle expects the transaction to be modestly dilutive to earnings on a non-GAAP basis by one cent this year, but that it would add at least four cents in fiscal 2009.
Oracle’s CFO Safra Catz said in a conference call yesterday that the merger will create substantial revenue synergies and significant economies of scale and expects it to contribute positively to Oracle’s long-term goal of 20% annual earnings growth.
Given the size of our global organization and the complementary nature of our businesses we do expect to sell quite a bit more together than we do currently once we’re in full speed and not in transition.
The deal marks the biggest merger in the BI market to date, exceeding Business Objects SA’s $1.2bn takeover of Crystal Decisions Inc back in 2003. It is also Oracle’s biggest software acquisition since it snapped up CRM firm Siebel Systems Inc for $6.1bn a little over a year ago.
Shares of Hyperion surged 20% to $51.60 in midday trading on Nasdaq after the deal was announced. Oracle’s stock jumped 3% to $16.92.
Hyperion develops a broad portfolio of BI tools, including the market leading OLAP server Essbase and financially-oriented analytic and CPM (consolidation, budgeting, planning, forecasting) applications that it is trying to merge onto a unified architecture called System 9.
Hyperion CEO Godfrey Sullivan said that the continued convergence of CPM and BI partly drove the decision to be acquired by Oracle.
Given the critical need for managers across the enterprise to align operational decisions with strategy now is the right time for Hyperion to combine with a strategic partner like Oracle to deliver the first, integrated end-to-end enterprise performance management systems.
Hyperion’s new owner, Oracle CEO Larry Ellison, agrees that the combination will propel Oracle to a position of category leadership in the CPM and BI space.
Hyperion’s EPM software coupled with Oracle’s BI tools and analytic applications form an end-to-end performance management system that includes planning, budgeting, consolidation, operational analytics and compliance reporting, Ellison said in a prepared statement yesterday.
Hyperion earned $63m on revenue of $765m last year, and revenue of $222.9m in its last reported quarter. Oracle is expected to earn about $5bn on revenue of around $18bn in its fiscal year ending in May. Oracle will report its quarterly results on March 20.
Hyperion employs around 2,700 people worldwide. Neither company commented on how many will be joining Oracle’s staff of 56,000 workers. But following its past acquisitions Oracle has laid off workers.
Oracle will also inherit 12,000 customers worldwide including most of the Fortune 100.
Sullivan said that customers should not be worried and should expect business to run as usual.
We’re confident our customers will see their investments protected and extended by Oracle, he said.
The swoop renews a $20bn shopping spree by Oracle over the past three years, including purchases of PeopleSoft Inc and Siebel Systems Inc, to boost sales growth in areas outside of its slowing database business and to topple rival business applications provider SAP AG.
Hyperion is Oracle’s 30th acquisition since 2004 and its products are widely used by SAP customers — around 55% according to market figures from AMR Research.
The opportunity to drive a wedge into SAP’s customer base is an opportunity that Oracle president Charles Phillips is fully aware of.
This is the latest move in our strategy to expand Oracle’s offerings to SAP customers, he said.
Thousands of SAP customers close their books with the Hyperion’s financial consolidation, analysis and reporting system of record products. Now Oracle’s Hyperion software will be the lens through which SAP’s most important customers view and analyze their underlying SAP ERP data.
Oracle has been eyeing an acquisition in the BI market for some time now. The unknown factor was its choice of vendor. Many industry pundits had predicted Business Objects to be in Oracle’s sights after it was cited as one of nine possible acquisition targets in a memo to Oracle’s board back in April 2003 during the protracted struggle to acquire PeopleSoft Inc.
Oracle’s acquisition could now trigger a renewed wave of consolidation in the BI market, with companies like Business Objects, Cognos Inc, Information Builders and MicroStrategy prime acquisition targets for large market capped IT players like SAP, IBM, Microsoft Corp and possibly Hewlett-Packard.
However Business Objects, now thought to be a logical target for SAP which is also in the midst of a big analytics push, remains bullish about its prospects as an independent BI firm in the light of Hyperion’s takeover.
We see this as an opportunity to expand and consolidate our leadership in the BI side of our business as an independent supplier, said Piet Loubser, senior director of market intelligence at San Jose, California-based Business Objects.
We still have the bulk of the BI market share no question, even though Oracle has been selling BI tools for many years, and without much success it must be said.
That’s because customers are looking for BI solutions that are independent of database, middleware and applications. A lot of Oracle’s BI products are tied to its database, like its IRI Express OLAP Server.
Now Oracle has taken one more pure-play BI vendor out of the market there is less choice for customers seeking an independent vendor. We now expect a lot of those Hyperion customers to go with us.
Loubser also said that Oracle now faced a stiff challenge to pick through the overlapping BI and performance management technologies it now has in its portfolio.
Oracle now has a number of products – its own Oracle BI Suite, PeopleSoft’s EPM, Siebel Analytics and now Hyperion’s BPM and Brio BI tools – and customers will be asking where do I go from here, especially those customers running on Hyperion’s older, legacy products and looking to upgrade.
Until Oracle delivers a clear roadmap customers are going to be confused and frustrated about which way to bet their BI investments now and in the future.
However, Wall Street was less optimistic as shares of Business Objects dipped 2% yesterday on Nasdaq.
Cognos, another vendor that now falls under the acquisition spotlight, is one of IBM’s closest business partners and merger speculation between the two firm surfaced once again last year.
Les Rechan, COO at Ottawa-based Cognos, acknowledged Hyperion’s acquisition as a game changing event for the BI market, but also said it strengthens Cognos’ competitive market position as an independent player.
A competitor has been removed from the market.
For customers that have heterogeneous database and application environments and require their performance management from a database and ERP independent vendor. Cognos is clearly now their number one choice.
Rechan also said that Cognos’ singular focus on CPM will enable us to innovate and respond to the changing needs of customers better and faster than any other vendor.
We offer a single performance management vision and an integrated solution. That’s in stark contrast to Oracle’s substantial product overlap and conflicting product vision.
Cognos shares rose 1.5% to $38.64 yesterday.
While Oracle hammers out a roadmap for integration and future product evolution, rival BI vendors will have a short window of opportunity to peck at nervous or disgruntled Hyperion customers, according to Paul Steep, director of software and IT services research at Scotia Capital.
While this deal represents a major competitive threat over the long-term to the remaining independent BI vendors our expectation is that they will have a one- to two-year opportunity as Oracle seeks to integrate the Hyperion product set, Steep wrote in a research note to investors.
Over the next year, our expectation is that Oracle will remain largely distracted with integrating Hyperion’s operations.