You may have thought I’ve gone crazy writing an Inside Mobile column declaring SAP to be a new major player in mobile.  After all, SAP is that big German software company that runs business operations in many of the Fortune 500 companies.  How could such a major ‘back office systems’ company be poised to be a major player in mobile?  The question can be answered in one word: Sybase. 

On May 12, SAP announced that it was acquiring Sybase for $5.8 billion in cash ($65/share).  Based on their current revenue of $1.2 billion and $48 share price, that represents an offer of 4.83 times revenue and 44% premium in the price per share.  SAP’s revenue are approximately $12 billion a year and growing. 

I attended the Sybase annual analyst meeting last week at the New York Stock Exchange in New York and learned a lot of why the acquisition of Sybase made a lot of sense.  I also learned about the new Sybase Mobile Platform that likely will assist SAP in helping many of their customers deal with mobility.

As Chairman of the Board, Sybase CEO John Chen had to look out for the Sybase stockholders.  I suspect he may have put his employment with SAP on hold until after the deal closes to avoid any conflict of interest.  He’s one of the most respected senior executives in the information technology sector and will likely play a key role in the future of the combined companies. 

In my view, the management likely realized that it would substantial time (many years) to build the share price of Sybase to the offer price of $65/share.  Plus, I suspect that Sybase management may be able to accomplish more in that time with SAP than staying independent.   

Here’s another very important consideration in the SAP-Sybase integration: SAP has over 100,000 customers.  Many of them have (almost certainly) declared mobility to be a major corporate strategic focus – enabling mobility for their employees (internal mobility) and enabling mobility for their customers to interface with the company (external mobility).  Since they are using SAP today, how is SAP going to help them deal with mobility in the years to come?

I suspect that SAP’s management team – having already been in partnership with Sybase on a few mobile initiatives – looked at Sybase as having key assets in mobility (enterprise apps, messaging, analytics, mobile marketing, mobile commerce and more) and felt that true synergy would result from acquiring Sybase and integrating their (very strong mobile) assets into SAP’s product line.  This, in turn, would enable SAP to best serve the needs of their 100,000+ customers in the years to come. 

In my opinion, the deal must have come together very fast and didn’t involve a lot of due diligence.  That demonstrated to me that both companies want to make the integration work. 

It seems likely to me that SAP management felt that -- with most of the customers trending toward mobility as a strategic initiative -- it was very likely that SAP would become more reliant on Sybase in the years to come.  And the price to do the acquisition would be much more expensive in the future that it would be today.  Sybase is strong in the financial industry, and the acquisition could help SAP into this segment.  Thus, the offer with a 44% premium on the share price likely included to some degree the expected value created by the synergy of the firms working together rather than apart. 

In order to get ready to deal with a 10x increase in customers, Sybase announced they are going to integrate their mobile offerings into a product line they call the Sybase Mobile Platform.  While it’s not another SmartPhone OS, it does include many (client and server) services that will help companies and organizations run their mobile operations in an integrated fashion with a unified management console.  It will take a number of years to complete this integration, but it appears to me to be a very important step enabling them to serve a much larger customer base. I’ll be writing more about the Sybase Mobile Platform as it takes shape and begins customer deployments. 

I think it’s safe to say that SAP will migrate to having mobility as a key strategy offering to all of their 100,000+ customers.  The Sybase tag line – The Unwired Enterprise – will likely extend to SAP and to hundreds of thousands of SAP’s customers. 

SAP’s acquisition of Sybase will help ensure these customers will stay with SAP for back office systems management as well as use SAP to enable internal and external mobility.  Thus, SAP will most certainly become a major player in mobile.

Written By:

J. Gerry Purdy, Ph.D.
Principal Analyst
Mobile & Wireless
MobileTrax LLC
gerry.purdy@mobiletrax.com
404-406-5309
 
Disclosure Statement: From time to time, I may have a direct or indirect equity position in a company that is mentioned in this column.  If that situation happens, then I’ll disclose it at that time.