Consolidation in business intelligence

There are four types of acquisition that dominate the IT mergers and acquisitions arena.

There are strategic acquisitions designed to buy market share leadership; deals that add complementary product lines and therefore breadth; acquisitions of failing companies that provide a captive customer base that can be milked; and acquired R&D that augments a stable product line with hot, if immature, technology.

In the last few months, the booming business intelligence (BI) sector has seen its fair share of all four.

The market share play came from Business Objects with its acquisition of Crystal Decisions. The two companies have competed fiercely in the query, analysis and reporting tools market, but the real battleground has been in the reporting software segment where Crystal has a huge leadership position.

But over the past three years, as Crystal has broadened its product line – and its large, indirect distribution channel – the company has become the fastest-growing BI software company in the market, achieving 30% growth in 2002 to bank revenues of $270 million. It is also one of the most profitable, with a 14% operating margin.

Functional overlap

Given that gilded profile, privately held Crystal had filed for a public offering on the US’s Nasdaq exchange, a move that would have provided it with a $100 million war chest for acquisitions and growth. That was not something Business Objects was going to allow – at any price.

And the price was high. The $820 million cash and stock offer from Paris- and Silicon Valley-based Business Objects came in at three times Crystal’s annual revenues. What analysts are questioning, though, is the value that the transaction brings to the customers of both companies.

Certainly it gives Business Objects the kind of market share it was looking for. Following the acquisition, Business Objects will have annual revenues of around $736 million (to 31 March 2003), putting it well ahead of its arch-rival Cognos, which had revenues of $551.0 million for roughly the same period, but still leaving it trailing SAS Institute with its revenues of $1.18 billion in 2002.

While customers of both companies will benefit from having a single point of purchase and support, they will now be concerned about the future of some product lines. Though Business Objects describes the acquisition as “complementary”, the functional overlap in the product lines of the two is considerable. Business Objects has strength in analytics; Crystal, on the other hand, has a huge following for its reporting software – 14 million licences – largely through reseller deals. Since the early 1990s, for example, Microsoft has bundled Crystal Reports with its application development tools, and the product is also included in SAP’s Business Warehouse. That vast installed base compares with Business Objects’ two million licences, built largely through direct sales.

The selection of one company’s products over the other’s won’t become clear until the fourth quarter when the deal closes, but even if certain products are combined or migration paths established for others, there will still likely be upheaval for many customers.

That is not so much of an issue for Hyperion Solutions with its $142 million acquisition of Business Objects competitor Brio Software. Hyperion has led the market for online analytical processing (OLAP) engines and for analytic applications for financial and corporate performance management. While Brio was very much an ‘also-ran’ in the query, analysis and reporting sector, its tools are complementary to Hyperion’s products and will make the combination a much more serious competitor to Business Objects and Cognos.

Brio has clearly been struggling, even in a market that has fuelled 15% to 30% growth at its competitors. In the year to 31 March, the company reported a net loss of $13.4 million on revenues down 7% to $103.1 million.

The third type of recent deal in the BI sector was all about R&D in-filling. Actuate is Crystal’s number one rival in reporting software, with a particular focus on scaling the delivery of reports to thousands of users, usually through portals or analytic applications. To do so its products need to be able to integrate data drawn from multiple sources – and XML data is becoming an increasingly common aspect of that.

Its acquisition of XML data integration specialist Nimble Technology, for an undisclosed sum, should address that issue. The Seattle-based start-up was founded in 1999 following a five-year research project at the computer science department of the University of Washington.

Back-up window

An acquisition at the other end of the product maturity scale was a feature of the storage sector. Even as early as the mid-1990s, disk systems vendor EMC was claiming it was more of a software company than a hardware company, in that software was how it added value and differentiation. Its acquisition of back-up software company Legato for $1.3 billion – a stunning five times Legato’s 2002 revenues of $261.9 million – will raise the proportion of EMC’s business coming from software to around 25%. The move shows that EMC wants to chase the back-up software segment. Combined, EMC and Legato will have about 10% of the market, close to CA’s 16%, but well behind Veritas’ 34%.

Major IT acquisitions in July/August
Acquirer   Activity   HQ   Target   Activity   HQ   Price  
Agile Software Product lifecycle mgmt s/w US Eigner Product lifecycle mgmt s/w Germany n/a
Amdocs Billing/CRM svcs US Bell Canada’s Certen Billing outsourcing svcs Can n/a
Aonix Software engineering tools Fr PERC Embedded software tools US n/a
Ascential Software Data integration s/w US Mercator Software Application integration s/w US $250.0m
Autonomy Information access s/w UK Virage Webcasting s/w US $25.0m
beTRUSTed Managed services US Baltimore US svcs unit Managed security svcs US £1.1m
Business Objects Business intelligence s/w Fr Crystal Decisions Business intelligence s/w Can $820.0m
Concord Communications Network/sys mgmt s/w US netViz Process visualisation s/w US n/a
Detica Group Cust mgmt/security IT svcs UK Rubus Cust/content sys integration UK £2.6m
EMC Storage systems US Legato Back-up s/w US $1.3bn
Epicor Software Mid-mkt business apps s/w US ROI Systems Manufacturing s/w US $20.7m
F5 Networks Appln traffic mgmt s/w US uRoam Secure remote access s/w US $25.0m
Fiserv Fin svcs data processing US EDS’s Credit Union unit Fin svcs data processing US $218.0m
Hewlett-Packard Systems &services US PipeBeach Voice-based XML tech Sweden n/a
Hewlett-Packard Systems, svcs &s/w US Baltimore’s SelectAccess unit Identity mgmt s/w Ireland n/a
Hummingbird Information mgmt s/w Can Valid Information Sys Records mgmt s/w UK n/a
Hyperion Solutions Business perf mgmt s/w US Brio Software Business intelligence s/w US $142.0m
IBM Systems, svcs &s/w US Aptrix Content mgmt s/w US n/a
ICICI OneSource Offshore call centre svcs India FirstRing Offshore call centre svcs India n/a
Interwoven Content mgmt s/w US iManage Collaborative content mgmt s/w US $171.0m
iSOFT Healthcare info systems UK Torex Healthcare info systems UK n/a
JDA Software Group Retail software Can Engage Ads, marketing, promotion s/w US $3.0m
Keynote Systems Web perf measurement svcs US Streamcheck Streaming media QA svcs US n/a
Lawson Software Business applns s/w US Numbercraft Retail/CPG analytics s/w UK n/a/
Management buy-out n/a UK ClarityBlue Sand Tech’s consulting unit Can n/a
Mercury Interactive Applns testing &mgmt s/w US Allerez IT ops reporting s/w US $1.3m
Micromuse Net service assurance s/w UK Network Harmoni Agent-based data collect s/w US $23.0m
Misys Financial/health sector s/w UK Per-Se Technologies Healthcare s/w US n/a
Neoware Systems Thin client/host access s/w US Pericom Holdings Host access s/w US $9.8m
Northgate Info Sys Business applns &svcs UK Hays Consulting &Solns Public sector data mgmt UK £5.5m
Northgate Info Sys Business applns &svcs UK blue 8 Technologies Emergency svcs IT systems UK £9.3m
Novell Network o/s &svcs US Ximian Open source dev tools US n/a
PeopleSoft Business applns s/w US JD Edwards Business applns s/w US $1.7bn
Perot Systems IT services US Vision Healthsource Healthcare BPO India n/a
Primus Knowledge Sys Knowledge mgmt s/w US Broad Daylight Self-service s/w US n/a
Sage Group Business applns s/w UK Softline Accounting/payroll/tax s/w S Afr £66.0m
SAIC Research/engineering svcs US Opta Management consultancy UK n/a
SCO Group Unix software US Vultus Web services dev tools US n/a
Secure Computing Security s/w US N2H2 Web content filtering s/w US $19.9m
Specialist Computer Hldgs IT services UK Hays Payroll Services Payroll outsourcing UK n/a
SSA Global Technologies Business applications s/w US EXE Technologies Supply chain execution s/w US n/a
SSA Global Technologies Business applns s/w US Elevon Collaborative commerce s/w US $20.5m
Storability Software Storage resource mgmt s/w US ProvisionSoft Storage provisioning s/w US n/a
Sun Microsystems Unix systems &s/w US Pixo Mobile content distrib s/w US n/a
Sungard Financial svcs IT solns US Sherwood International Insurance/gvmt s/w &svcs UK £105.0m
Symantec Enterprise security s/w US Nexland VPN appliances US n/a
Symbol Technologies Mobility technologies US Covigo Mobile apps dev s/w US n/a
United Rental Group Car rental UK IDOX Software Document mgmt s/w US n/a
Western Digital Disk drives US Read-Rite Disk system components US $95.4m
Yahoo! Web portal svcs US Overture Services Web search services US $1.63bn

Avatar photo

Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

Related Topics