Sunday, February 14, 2010

Will SAP be acquired?

Lately, SAP has had management shake-up followed by management shake-up followed by management shake-up. SAP's challenges have led many to speculate whether SAP can remain independent. In that vein, Enterprise Irregulars ran a poll asking readers to state their opinions of whether SAP will be acquired, by whom, and when. The poll will remain open, but the results at this point are not changing quickly with new votes, so this is as good a time as any to assess the results.

With over 340 nearly 600 votes in, two thirds over 70% of all who voted expressed the opinion that SAP will be acquired.

Poll 1 (343 votes as of 14 Feb 2010) (594 votes as of 22 Feb 2010)
Who will acquire SAP?

No one, SAP will remain independent: 34% (116 votes) 29% (170 votes)
AT&T: 1% (4 votes) 1% (6 votes)
Cisco: 2% (6 votes) 2% (13 votes)
Google: 3% (9 votes) 2% (12 votes)
HP: 7% (24 votes) 7% (39 votes)
IBM: 29% (99 votes) 34% (200 votes)
Microsoft: 18% (61 votes) 18% (104 votes)
Oracle: 4% (12 votes) 6% (36 votes) 1% (3 votes) 1% (5 votes)
Other: 3% (9 votes) 2% (9 votes)
Poll 2 (275 votes as of 14 Feb 2010) (485 votes as of 22 Feb 2010)
When will SAP be acquired?

Not for the foreseeable future. SAP will remain independent: 41% (112 votes) 33% (159 votes)
Announcement in first half of 2010: 6% (17 votes) 6% (31 votes)
Announcement in second half of 2010: 20% (55 votes) 25% (119 votes)
1H2011: 10% (27 votes) 12% (59 votes)
2H2011: 8% (23 votes) 9% (42 votes)
2012: 10% (28 votes) 10% (49 votes)
2013: 1% (4 votes) 2% (12 votes)
2014 or later: 3% (9 votes) 3% (14 votes)
Analysis of poll results

Clearly, an overwhelming majority of respondents believes that SAP will be acquired (not everyone voted in the second poll). 225 of 341 (66%, or just a shade under 2/3, of) Over 70% of respondents indicated a belief that SAP will be acquired. IBM was the leading contender, with 29% 34% of respondents, followed by Microsoft with 18%, and HP with 7%. Of those expressing an opinion as to when SAP will be acquired, 10% believe it will be announced in the first half of 2010, 34% 37% go with the second half of this year, and 17% 31% believe it will be next year.

Can SAP be acquired?

Obviously, SAP can be acquired. It is for sale every day on multiple stock exchanges. The founders might have to be negotiated separately, but, yes, the company could be acquired - theoretically.

In practicality, there are a large number of issues that would make an acquisition of SAP very challenging.
  • The founders own a controlling share of the company. Their support would be essential for any acquirer. At the moment, the founders do not seem to have an interest in the company being acquired, but this can change. The founders might like to be the largest shareholders in IBM (for example) some day - or (to put it indelicately), their heirs might.
  • The remaining shareholders have to approve an acquisition with a large majority. This could happen only if they expected that the company's management would provide a significantly worse return on their equity than would an acquirer. This is not so hard to imagine, particularly if the latest management shake-up fails to produce a return better than the market as a whole, and if a suitor would propose an acquisition with a significant premium.
  • Projected customer retention would have to justify the purchase price. Given how hard it is to move off SAP, and given the current difficulties with third-party support models, this criterion seems to be easily satisfied, at the right price for the company.
  • European and national regulators (e.g., in the US, Russia, and China) would have to be satisfied that the acquisition of the company would not decrease competition in the market. This criterion would be satisfied if the acquirer were not a major applications supplier prior to the merger, and particularly if Oracle were surging or SAP were showing signs of an impending collapse. Passing this hurdle would be tricky, although AT&T, Cisco, Wipro, or others should be able to overcome this; Oracle and Microsoft would have significant challenges based on their applications portfolio (although they could divest), and IBM and HP might have smaller challenges based on their size and control of the enterprise market in various segments.
  • The most challenging issues could be with national labor laws, particularly in Germany. These labor laws restrict the types of changes that can be made by the company without approval from the workers, such as reductions in force, changes to compensation levels or structures, and changes in management and reporting structures. Any acquisition of SAP will require approval from the German workers, and this may be difficult to obtain, particularly if the founders give up their standing by offering to sell their shares to a foreign company.
Summary, and my €0.02

Given all these issues, an acquisition of SAP is very unlikely in the short term, and perhaps could not occur unless SAP faces an existential crisis. Many would argue that such a crisis is looming, as evidenced for example by the results of the poll above. Time will tell. Regardless, I would advise employees of SAP to focus on overcoming the company's short-term challenges, and exploiting the opportunities within its grasp.

Thursday, February 11, 2010

SAP keeps it interesting!

Even more changes under way at SAP. First, SAP announced a major shake-up in mid-January. Next, this past Sunday, SAP's CEO abruptly left the company and was replaced by co-CEO's.

Today, the other shoe dropped. Several pieces of news were announced, but the big one is that John Schwarz left SAP, effective immediately. Schwarz was the CEO of Business Objects prior to its acquisition by SAP. He was considered by insiders and outsiders as an excellent candidate for CEO of SAP after spending enough time at the company. His departure further weakens an already-thin management team.

The other announced news is that Gerhard Oswald is becoming SAP's COO, and that Peter Lorenz is joining SAP's team of corporate officers. Oswald was rumored to be leaving this year, as his responsibilities were transitioning to Bernd-Michael Rumpf. However, Ernie Gunst had to leave SAP due to health reasons, opening up the COO position. While the COO role is a relatively new position at SAP, perhaps the company thought it best to keep some stability by retaining Oswald. Not clear yet is whether Oswald will retain responsibility for services and support.

Will there be even more changes coming at SAP? Most likely. The Business Objects leaders supported by John Schwarz will not have air cover anymore, putting their status and longevity in doubt. With Snabe moving up a level, and with Schwartz leaving, there are also many questions about how the product side of the house will be organized. As of the January announcement, Schwarz was set to run product management, with Snabe running development. That transition has not yet occurred, but all the changes were planned and internally known. Much of that planning will have to be re-done now.

The abruptness of these changes leads to doubt about whether they were thoughtfully planned out. Some of the changes make a great deal of sense (making Vishal Sikka a member of the executive board, making Peter Lorenz a corporate officer and bringing together all the small and medium enterprise efforts under his purview), but many of these changes do not appear to have had the luxury of thorough planning. SAP needs to improve the strength of its management team, and the latest changes imply that SAP needs to work hard to make it possible for "outsiders" to succeed at SAP over the long term.

See Also:
Poll: Do You Think SAP Will Be Acquired? -

Tuesday, February 9, 2010

Will SAP be acquired?

Well, there has been plenty of speculation that SAP will be acquired, and even that the departure of Leo Apotheker increases the probability of this happening. With that in mind, and obviously in a completely unscientific sampling, here are two polls: the first on who (if anyone) might acquire SAP, and the second on when …

You can come back here to see results periodically, and I plan to blog the results in a week or so.

Monday, February 8, 2010

Changes at #SAP

By now, especially if you follow me on twitter (@dbmoore), on the Enterprise Irregulars blog (, on blogspot (, delicious (, you know that there have been some big changes at SAP.

This weekend, it was announced that Leo Apotheker was leaving SAP immediately. Leo had been SAP's CEO. Replacing Leo would be co-CEO's Jim Snabe (focusing on technology) and Bill McDermott (focusing on sales). Also announced was the elevation of Vishal Sikka, the company's CTO, to SAP's Executive Board (the management board).

Recently, it had been widely rumored that Leo's contract would not be renewed, and that a new CEO (or co-CEOs) would be brought in to replace him. Names bandied about for his replacement included:
  • Wendelin Wiedeking, a former CEO of Porsche, currently being investigated for insider trading,
  • Jim Hagemann Snabe, head of products at SAP, and a member of the executive board there,
  • William (Bill) McDermott, head of the field (sales and services) at SAP, and a member of the executive board there, and
  • John Schwartz, former CEO of business objects, and a member of the executive board of SAP.
Apparently, the rumor mill was fairly efficient this time.

This morning, SAP had a conference call led by Hasso Plattner, and including the SAP executive team. While I couldn't participate, thanks to the magic of twitter, I was able to follow along. Below are some of the key tweets that came out during the call - definitely gives a good flavor of what happened, although not quite a transcript:

twailgum #leogone I said it last night, and I'll say it again: "SAP, Who Are You?" Hasso offered direction this a.m. We'll see where this all goes.
rwang0 #leogone gives #SAP a chance to start a new. Focus needs to be on products
rwang0 Not sure why Plattner references Oracle's best years with Ellison and Ray Lane #sap #leogone
monkchips "we made legal and political mistakes. we made a mistake, now we need to work to regain the trust of customers" #sap #leogone bout time!!!
hschepp Hasso: Customers have to maintain and innovate. SAP will help them to achieve both! #sap #leogone
sig With Hasso at the helm I expect to hear a lot about "massive.." this and that technology from #sap until further notice :) #leogone
yojibee Hasso: It would be wonderful to be a startup company without a history #leogone <<>
hschepp Hasso predicts "significant changes" in enterprise computing #sap #leogone
yojibee Hasso's answers to why Léo left: "I decided I will only make forward looking statements." #leogone
yojibee Bill and Jim will keep their responsibilities, but increase the scope of their roles. They won't be just CEOs #leogone
amitsharma1382 Is anyone thr, is anybody out there who still feels #SAP is not a cmpny which respects employees, #leogone is your answer .salute 2 candid
paulhamerman #SAP #leogone co-CEOs have been used before at SAP, usually as part of a transition of power. Seems to be a bit different this time.
yojibee Hasso: I am responsible for making the change. #leogone
yojibee Co-CEO was never a short-term strategy. One is focusing externally on customers/sales and one is focusing internally on development #leogone
hschepp Hasso: In order to be profitable you have to be a happy company #sap #leogone
paulhamerman #SAP #leogone Kudos to Hasso for his candor about the trust issue.
MichaelKroker Plattner: "Have to re-establish trust between differenz parts of #SAP, ie. Management, Supervisory board, Employees & Customers" #leogone
yojibee Hasso: Thank you customers. To endusers: please trust us, we haven't forgotten about you #leogone
monkchips to end users: "please trust SAP, we have not forgotten you". is Plattner reading from Renault's script? #leogone
paulhamerman #SAP #leogone New in memory DB will be showcased at Sapphire Orlando.
hschepp Hasso: Now talking about ByD. "Looks good now. Optimistic this year will be very good for ByD." #leogone #sap
yojibee The lack of success of ByD was not a reason why the contract with Léo wasn't extended #leogone #sap
yojibee Hasso: We have strengthened our focus on on-demand solutions. (mentions @12sprints) #sap #leogone
hschepp Hasso: No disagreements about strategy with Leo. #leogone #sap
yojibee Hasso: Focus is on growth, margin and innovation #sap #leogone
hschepp Hasso: All areas of SAP has to accept the strategy of change. #sap #leogone
paulhamerman #SAP #leogone Ernie Gunst, COO of SAP, has left for health reasons.
monkchips so Hasso runs SAP. tell us something we didn't know. #leogone
yojibee Hasso: We will have changes in management style. For instance: Agile project teams #sap #leogone
hschepp Hasso: Radical changes have to take place in development where necessary. #sap #leogone
MichaelKroker Hasso Plattner: "No difference in opinion between Léo and me on Strategy", "No Problems with Business By Design" > Wonder why #leogone then?
paulhamerman #SAP #leogone Hasso: SAP must reestablish trust among all parties, must change this quickly.
Blogs sprung up over the weekend, speculating on the changes and what they mean. Some of the key blogs were:

Of course, now that the conference call has happened, I'm sure there will be a new set of analyses popping up, and the Enterprise Irregulars blog site is where you'll be sure to find the best analysis.

So, what is behind all these changes? My opinion, for what it's worth: Hasso Plattner wants to drive a great deal of technological innovation at SAP, and did not believe it could happen under Leo's leadership, and without Hasso's very direct involvement. Hasso has a great deal of confidence in Vishal Sikka's technology perspective, and Vishal was appointed to the Executive Board as part of this change, pointing to Hasso's desire to unleash a new wave of innovation at SAP. Jim Snabe will be given the opportunity to bring all of SAP's products under one head (both development and product ("solution") management). Bill McDermott has certainly already proven that he can run SAP's field, so there is not much risk in this change. Perhaps the biggest risk is on the product side. The product organization is full of conflicting technologies, conflicting interests, and conflicting agendas. Driving change in this kind of climate will be very challenging for Jim and Vishal.