After repeated false starts of trying to build its way into the enterprise eCommerce space, SAP has finally decided to do a U-turn on its strategy and buy its way in. For years there has been intense speculation that SAP might acquire hybris, and behind the scenes there has certainly been much umming and ahing over the enterprise software giant’s commerce strategy. Hybris has been on a tear recently, and until today was widely expected to file for an IPO in 2014; however, the firm’s destiny has for some time been in the hands of its VC investors (Huntsman Gay Global Capital, Meritech Capital Partners and Greylock Israel). The decision to sell to SAP was likely influenced by these VC firms who, between them, have a controlling state in the firm. The value of the acquisition has not been disclosed, but given hybris’ strong earnings over the past four quarters (the bulk of which was directly from license revenues) and with the looming path of an IPO, we can speculate that SAP paid a substantial price tag — although the terms of the transaction are likely complicated.
So the big surprise is not why, but why now? There is no single answer to this question — but we can look at the factors that have increasingly piled on the pressure for SAP to change direction and pull the trigger on this acquisition:
HP seems to be on a tear, bouncing from litigation with one of its historically strongest partners to multiple CEOs in the last few years, continued layoffs, and a recent massive write-down of its EDS purchase. And, as we learned last week, the circus has not left town. The latest “oops” is an $8.8 billion write-down for its purchase of Autonomy, under the brief and ill-fated leadership of Léo Apotheker, combined with allegations of serious fraud on the part of Autonomy during the acquisition process.
The eventual outcome of this latest fiasco will be fun to watch, with many interesting sideshows along the way, including:
Whose fault is it? Can they blame it on Léo, or will it spill over onto Meg Whitman, who was on the board and approved it?
Was there really fraud involved?
If so, how did HP miss it? What about all the internal and external people involved in due diligence of this acquisition? I’ve been on the inside of attempted acquisitions at HP, and there were always many more people around with the power to say “no” than there were people who were trying to move the company forward with innovative acquisitions, and the most persistent and compulsive of the group were the various finance groups involved. It’s really hard to see how they could have missed a little $5 billion discrepancy in revenues, but that’s just my opinion — I was usually the one trying to get around the finance guys. :)
On August 10, rival IT outsourcers hiSoft and VanceInfo announced their intention to merge. The resulting entity will comprise a much bigger organization, with more than 20,000 employees mainly located in China, making it one of the largest IT services vendors in the country. In another recent example of market consolidation, BeyondSoft announced on August 18 that it would acquire six Chinese and Japanese subsidiaries of Achievo, a US-based offshore IT services provider.
Over the next 18 months, we believe that IT services vendors in China will face increasing price and margin pressure driven by rapidly increasing local labor costs. The days of relying on low labor costs to drive business in the US, Europe, and Japan are numbered. Chinese IT services vendors are being forced to evolve from a cost-based to a business value-based approach. As a result, we expect the Chinese IT services market to consolidate over the next 18 to 24 months as vendors seek ways to improve their organizational and operational maturity.
The challenges hiSoft and VanceInfo will face after the merger are indicative of broader market pressures, including:
An increased capacity to better compete in large deals. As separate entities, hiSoft and VanceInfo both faced significant challenges when bidding on large-scale outsourcing projects with a total contract value of more than $50 million. With this merger, we expect the newly formed organization to gain better access to these deals as they become more visible to MNCs. However, the new company will still be small by Indian offshore standards.
KANA Software is acquiring Sword Ciboodle — a Scottish case management and BPM company and a strong performer in Forrester's 2011 Wave™ on dynamic case management. The Ciboodle platform has a strong presence in the service request area of case management and scored particularly well in the application development, automation, and event management criteria. It also proved you can build best-in-class software while headquartered in a Scottish castle.
The acquisition makes a lot of sense. Both companies circle around the customer service area — with KANA focusing on the self-service channel with advanced email and knowledge strategies that leverage the social channel, and Voice of the Customer text analytics. All with the goal to reduce service costs by having customers help themselves — without going crazy in the process. But KANA had very little in contact centers themselves. Sword plugs this gap with over 50 customers in contact centers that use BPM and case management to provide a process layer on top of systems — where green screens are not uncommon. But Sword had virtually nothing for the email and self-service channels.
Together the acquisition will free up KANA's R&D. Instead of beefing up core BPM and case engines, and internal enterprise social capabilities, it can now focus on mobile apps and enhancing overall outside in "listening" capabilities. Geographically the acquisition helps as well. KANA was 70 percent North American, but with the addition of Euro-centric Sword is now closer to a 50/50 split between North America and Europe, the Middle East, and Africa (EMEA).
Bridgekeeper: "What ... is your name?"
Traveler: "John Swainson of Dell."
Bridgekeeper: "What ... is your quest?"
Traveler: "Hey! That's not a bad idea!"
We suspect Dell's process was more methodical than that!
This acquisition was not a surprise, of course. All along, it has been obvious that Dell needed stronger assets in software as it continues on its quest to avoid the Gorge of Eternal Peril that is spanned by the Bridge of Death. When the company announced that John Swainson was joining to lead the newly formed software group, astute industry watchers knew the next steps would include an ambitious acquisition. We predicted such an acquisition would be one of Swainson's first moves, and after only four months on the job, indeed it was.
In their Asia Pacific Tech Market Outlook For 2012 report, Andrew Bartels and Frederic Giron show that government and business IT spending in the emerging markets of Asia (including China, India, and the ASEAN countries) will reach US$180 billion in 2012, growing by roughly 13% over 2011. While emerging Asia’s IT spending is surging this year, economic obligations in the developed markets of North America, Europe, and Japan will ensure continued austerity — and limited IT spending growth. In other words, emerging Asia is clearly a lucrative region of opportunities for US, European, Japanese, and South Korean vendors looking for new sources of growth to offset lower business prospects in their home markets.
Asia is a region of highly disparate countries, with regulatory complexity, cultural differences, and a limited pool of skilled resources. These barriers to entry and expansion will compel vendors to look beyond organic growth, which is simply too time-intensive. Instead, mergers and acquisitions (M&A) of local/regional incumbents with local know-how, skills, and client relationships will increasingly be a strategic imperative for vendors targeting emerging Asia. I’ve highlighted some examples from the Indian market below, but I foresee similar trends in the overall ICT sector throughout emerging Asia:
On 22-Nov-2010, Attachmate Corporation announced it was acquiring the assets of Novell, Inc. Once on top of the IT world, Novell's glory had clearly faded. Along the way, however, it acquired several attractive assets of its own (e.g., PlateSpin, Managed Objects). Towards the end of its independence, the future certainly looked bleak for Novell and especially its management software businesses.
The immediate reaction to the Attachmate acquisition was skepticism among most industry watchers, including yours truly. My reaction was similar when Attachmate acquired NetIQ. After all, what rationale is there to a legacy mainframe software company buying either NetIQ or Novell? The perception was that all of these product families would be milked for their maintenance revenue and innovation, and other development would be killed. It now appears these fears were largely unfounded, though I stand by my original skepticism. Veterans like me have seen such things unravel before.
The various Novell assets have been redistributed across four companies in the Attachmate Group, with the management assets being assimilated under the NetIQ brand. While a full merger of the NetIQ and Novell assets will take at least a year, the (now) NetIQ team has moved with impressive speed to launch its initial consolidated families.
Another year and Citrix’s acquisition strategy of interesting companies continues as they have announced the purchase of EMS-Cortex. This acquisition has caught my eye because EMS-Cortex provides a web-based “cloud control panel” that can be used by service providers and end users to manage the provisioning and delegation administration of hosted business applications in a cloud environment such as XenApp, Microsoft Exchange, BlackBerry Enterprise Server, and a number of other critical business applications. In theory this means that customers and vendors will be able to “spin up” core business services quickly in a multi tenant environment.
It is an interesting acquisition, as vendors are starting to address the fact that for “cloudonomics” to be achieved by their customers it is important that they ease the route to cloud adoption. While this acquisition is potentially a good move for Citrix I think it will be interesting for I&O professionals to see how they plan to integrate this ease of deployment with existing business service management processes, especially if the EMS-Cortex solution is going to be used in a live production environment.