Experts are predicting a busy period of mergers and acquisitions among enterprise software vendors, which could greatly affect IT buyers options, after Microsoft admitted last week that it had been in merger talks with SAP.
A Microsoft-SAP combination would have been the biggest-ever IT merger, dwarfing even HP’s capture of Compaq in 2002. It would also have marked a huge departure for Microsoft, which has never made an investment bigger than the approximately $1.4bn it paid for Navision in 2002.
Even though the SAP talks broke down, they underline Microsoft’s appetite for growth and its ambitions in enterprise applications. Although the firm has built up its capabilities through internal efforts such as CRM and through the acquisitions of Navision and Great Plains Software, it has focused on the mid-market. The SAP talks indicate that large firms such as CRM pioneer Siebel Systems or UK accounting software giant Sage could now be in its sights.
“Whenever we have suggested that Microsoft purchase Sage, we have been met with a barrage of reasons why this would never happen,” wrote Richard Holway of analyst Ovum Holway in a research note. “We have been lulled into believing that Microsoft would only ever do relatively small deals. Not any more. Apart from Microsoft buying IBM, we now can’t think of a coupling where the term ‘impossible’ would still apply.”
Financial analysts said that an appetite for mergers and acquisitions was returning. John Cromwell, managing director of investment bank SVB Alliant, said, “There are something like 740 public software firms and you have to ask whether that’s necessary.”
Consolidation of larger firms could force the rest to focus on integrating with them – for example, via web services. It would also cut the number of IT suppliers, but Cromwell said there would still be room for innovation. “It won’t be an oligopoly,” he added.
In a research note last week, Steven Milunovich of finance firm Merrill Lynch suggested that HP should split into computing and printing, or enterprise and consumer organisations. This would allow the computing or enterprise part to consider buying firms such as Sun, Unisys or BearingPoint, formerly KPMG Consulting. Sun was last year linked with a sale to IBM although watchers such as Gartner analyst Andy Butler have suggested Fujitsu Siemens Computers could be a better fit.
At a meeting with financial analysts last week, HP chief executive Carly Fiorina said the company would continue to invest in mergers and acquisitions in order to fill out capabilities. HP has recently bought software firms Novadigm, TruLogica and Consera.
SAP said last week that although it was not attempting to sell itself, it remained open-minded about merger possibilities.