SAP's Sybase Acquisition Represents Strong Mobile Play

SAP's agreement to buy Sybase for $5.8 billion should help the software company stay competitive with Oracle through new revenue streams and a larger technology portfolio. Analysts agree that the acquisition also gives SAP the ability to capitalize on former strategic partner Sybase's mobile technology at a time when businesses seem to be gravitating strongly toward smartphones and tablets. One analyst suggests that SAP has not been successful with mobilizing its own suite of back-office applications, and that the acquisition can rectify this.

SAP's $5.8 billion acquisition of Sybase, announced on May 12, marks a major shift in the enterprise-software landscape. First and foremost, it will likely allow SAP to stay competitive with Oracle, through new revenue streams and a larger technology portfolio. But the acquisition of Sybase, one of its strategic partners, also allows SAP to consolidate and expand upon its mobile offerings, where some analysts have seen the company as lacking.

"On first glance, this is clearly a strength-to-weakness deal. SAP's annual sales and its market cap are both [more than 10] times the size of Sybase's," Pund-IT Research analyst Charles King wrote in a May 13 research note. "While SAP develops and delivers a wide range of enterprise business software solutions, Sybase's offerings are skewed towards the global mobile market, where the company's database solutions support SMS [Short Message Service] messaging chores for [more than 4] billion mobile phones."

Furthermore, King added, "Sybase's strong presence in global mobile telephony offers intriguing opportunities for SAP to further leverage and extend its business solutions." That could become essential as the mobile market continues to evolve: "Given the exploding interest in smartphones, tablets and other handheld computing devices, this qualifies as a classic no-brainer."

SAP clearly sees mobile computing, cloud computing and on-premises enterprise resource management applications as the primary underpinnings of its business in both the short and long term. The deal itself was negotiated, apparently, as part of a merger agreement signed by SAP American, the organization's U.S. subsidiary, with Sybase selling at $65 per share-a 44 percent premium over the company's average stock price last quarter.

The largest SAP acquisition since its $6.7 billion purchase of business intelligence software producer BusinessObjects in 2008, it only highlights the increasing premium placed on mobile technology in the enterprise.

"Mobile devices are becoming the preferred interaction point with business applications, whether the user is a factory supervisor, a retail manager or an entrepreneur in a development nation," Jim Hagemann Snabe, co-CEO of SAP and a member of the SAP executive board, wrote in a statement announcing the acquisition.

Other analysts concur on the mobile focus of the acquisition.

"SAP rightly understands that within the next two to three years there will be more mobile platforms used in business than desktops, especially in emerging markets where many businesses are skipping the traditional PC device in favor of the many flavors of smartphones and other wireless devices (e.g., the emerging trend [of] tablets/slates)," Jack Gold, principal analyst at J. Gold Associates, wrote in a May 12 research note.

"With the acquisition of Sybase," Gold wrote, "SAP gets a proven technology player that has a major impact on mobilized solutions across a wide swath of capabilities. And while mobility may be the driving force behind this acquisition, SAP also gets a high-quality analytics capability and mobile infrastructure play (Sybase 365) it can leverage to boot."

Gold added that SAP has not been "terribly successful in the past with mobilizing its suite of back-office applications on its own, despite years of trying." The Sybase acquisition gives SAP access to the former's mobile middleware Unwired Platform, in addition to a host of mobile management, security and smartphone secure-client technologies. In addition, Sybase comes with capabilities in large-scale, real-time data analytics and a track record in mobilizing enterprise apps.

"While Sybase owns a nice niche, especially in the financial industry, it cannot compete head-to-head with Oracle in applications suites. This has put them at a disadvantage, and a combination with SAP can rectify this," Gold wrote. "Finally, buying Sybase takes the leading platform vendor for mobile out of the market and away from ... possible capture by a competitor of SAP, so this is a strategic business acquisition as well as a strategic technology one."

SAP has indicated a willingness to examine other possible acquisitions, but company executives have not said the company means to embark on an Oracle-style spending spree.

"You can easily buy yourself growth in this industry," Snabe told reporters during an April 14 news conference. The industry, he added, is "seeing lots of acquisition to build revenue growth, but very little innovation. We have done the opposite. We have tried to innovate."

SAP co-CEO Bill McDermott, however, acknowledged that the company would be open to any acquisitions that "made sense."