SAP’s New CEOs Rush for Turnaround With 5.8 Billion Sybase Buy
http://www.businessweek.com/news/2010-05-12/sap-s-new-ceos-rush-for-turnaround-with-5-8-billion-sybase-buy.htmlMay 12, 2010, 11:51 PM EDT
By Serena Saitto and Aaron Ricadela
May 13 (Bloomberg) -- SAP AG’s new co-chief executive officers Bill McDermott and Jim Hagemann Snabe are rushing to beat Oracle Corp. in software for wireless Internet transactions with a $5.8 billion acquisition of Sybase Inc.
Sybase shareholders will receive $65 a share, Walldorf, Germany-based SAP said in a statement yesterday. That is 56 percent higher than the closing price of $41.57 on May 11, before the discussions became public. The deal includes about $506 million in Sybase debt, SAP spokesman Saswato Das said.
With Sybase, SAP adds software that helps corporate customers run applications on mobile devices. Three months into their tenure, McDermott and Snabe are using acquisitions to reverse the sales slump that led to the departure of their predecessor, Leo Apotheker. SAP had avoided takeovers as Oracle spent more than $42 billion on 64 companies since January 2005.
“This is a stake in the ground for the new regime to make a claim for some headlines, drama and a pretty good business case for buying the company,” said Joshua Greenbaum, principal of Enterprise Applications Consulting, a research firm in Berkeley, California. “McDermott and Snabe are saying, ‘Here we are.’”
‘Shop Floor to Corner Office’
Apotheker presided over the first annual drop in revenue at the company since 2003 as customers beset by the recession refrained from purchasing new software. Oracle in December said it was winning customers at the expense of SAP, the world’s biggest maker of business-management software.
Companies use SAP business applications to track orders, manage inventory levels and plan delivery schedules. Sybase makes software that helps handset users do business from mobile devices. SAP will use the purchase to cater to customers that want employees to use tablets and smartphones while working.
“This will literally connect the shop floor to the corner office,” McDermott said during a conference call yesterday.
Snabe, 44, started as an SAP trainee in 1990 and has run consulting and product development groups. McDermott, 48, headed global sales. The executives were named co-CEOs on Feb. 7 and have been racing to get products out the door more quickly and eliminating what they consider inward-focused projects that occupy executives’ time and do little to boost revenue.
Higher Premium
To clinch the purchase, the executives agreed to pay 15 times Sybase’s earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg. That’s higher than the average 8.4 times EBITDA paid in software takeovers announced in the past year.
“The deal makes sense because SAP is betting heavily on in-memory computing and mobile applications as the future of computing and Sybase brings to the table a capability for high- speed in-memory databases and a mobile application platform,” said Paul Hamerman, vice president of enterprise applications at Forrester Research in Cambridge, Massachusetts.
SAP is also paying a higher premium than other acquirers. In the software industry, 1,058 deals have been announced in the last 12 months, with an average premium of 47 percent.
The premium size is why Sybase management agreed not to shop the company around, said two people close to the deal.
With an acquisition spree that began in January 2005 with the hostile takeover of PeopleSoft Inc., Oracle CEO Larry Ellison, 65, has turned the company into a one-stop shop for customers, moving beyond its hallmark database programs.
Oracle’s Sales Growth
The company’s sales almost doubled to $23.3 billion in the four years through fiscal 2009, which ended May 31. SAP’s sales rose 42 percent in the four years through 2009.
Sybase CEO John Chen, 54, will continue to run Sybase as an independent unit and will join SAP’s executive board. SAP said the deal will immediately add to per-share earnings before certain costs. McDermott said SAP doesn’t plan to eliminate jobs from Sybase.
SAP was advised by Deutsche Bank AG and Barclays Plc and received legal counsel from Jones Day. Sybase’s financial adviser was Bank of America Corp. and its legal adviser was Shearman and Sterling LLP.
With the exception of SAP’s 2007 acquisition of Business Objects, the company’s last two CEOs, Apotheker and Henning Kagermann, largely eschewed big acquisitions.
The Long Island-bred McDermott and Snabe, a Dane who lives in Copenhagen, are more open to big bets, Greenbaum said.
“McDermott thinks like an American high-tech CEO and Snabe’s not far behind him,” he said. “For better or worse, McDermott’s going to inject some of that American business culture into SAP.”
