Scotia Capital on SAP / Outlooksoft deal

Here is a summary note from Paul Steep, the highly ranked software and services research analyst at Scotia Capital:

? SAP announced that it has reached an agreement to buy privately held OutlookSoft to increase its BPM offerings. Although financial terms were not disclosed, SAP indicated that the deal is expected to close in June. We estimate that SAP paid ~3x trailing revenues or $90M for OutlookSoft, comparable with other recent transactions (e.g., Cartesis, ALG, Adaytum).

? Our view is that SAP’s decision to purchase OutlookSoft is reflective of the firm’s acquisition strategy which favours purchasing smaller software vendors for targeted technologies. We believe that SAP’s decision to purchase OutlookSoft reflects its desire to strengthen its financial planning applications in advance of new customer implementation projects. We do
not expect significant changes to the competitive landscape for Business Objects (BOBJ:NASDAQ) or Cognos (COGN:NASDAQ) given our expectation that SAP is likely to focus on serving its core installed base of customers.

? We do not anticipate that SAP will be active in pursuing either BOBJ or COGN given the firm’s focus on smaller technology driven acquisitions. We continue to see limited strategic buyers (e.g., IBM, HP) for BOBJ or COGN which should result in more realistic valuation multiples.

MRM