Has The BI Market Consolidation Been Crystal-Clearly Actuated?

Event Summary

The frantic first week of June that marked an outright internecine war in the ERP space, seems to have been somewhat repeated in the second half of July, but this time in the business intelligence (BI) market. The following acquisitions were announced:

  • Business Objects will acquire Crystal Decisions

  • Hyperion will acquire Brio Software

  • Actuate Corporation has completed the acquisition of Nimble Technology

  • Geac and SSA GT have acquired Comshare and Elevon

  • Lawson Software has acquired Numbercraft

For a comparison of the consolidations taking part in the BI market versus those among ERP vendors see "BI Market Consolidation Compared to ERP Market Consolidation".

This is Part One of a three-part note.

Part Two will discuss the Market Impact.

Part Three will cover Competition and make User Recommendations.

Business Objects and Crystal Decisions

First, on July 18, Business Objects (NASDAQ: BOBJ; Euronext Paris ISIN code FR0004026250 - BOB), a global provider of enterprise business intelligence (BI) solutions, and Crystal Decisions, Inc., a privately held information management (i.e., enterprise reporting) software provider announced a definitive agreement under which Business Objects will acquire Crystal Decisions. Under the terms of the agreement, Business Objects will issue approximately 26.5 million shares of common stock in respect of outstanding Crystal Decisions common shares and stock options, which will represent approximately 29% of the combined company's shares. In addition, Crystal Decisions stockholders will receive an aggregate of $300 million in cash.

Based on the closing price of Business Objects' stock on July 17, 2003 the transaction is valued at an aggregate purchase price of approximately $820 million. The transaction is expected to close in the fourth calendar quarter of 2003, and is subject to regulatory reviews and approvals, such as the Hart-Scott-Rodino Act; approval by the shareholders of Business Objects; and certain other customary conditions. Thomas Weisel Partners LLC acted as financial advisor to Business Objects, while Goldman, Sachs & Co. acted as financial advisor to Crystal Decisions.

The consenting vendors claim that this transaction joins two of the strongest-performing companies in enterprise applications software, with highly complementary products, distribution channels, geographic presence, and talent pools. The transaction is expected to be accretive to Business Objects' 2004 earnings even prior to considering the impact of expected revenue and cost synergies, but before purchase accounting adjustments. The companies also believe there are significant opportunities for operating cost synergies, which are expected to result in pre-tax savings of approximately $25 million for calendar year 2004. As a strategic rationale for the acquisition, Business Objects cites the combined company should benefit from:

  1. The business intelligence (BI) market leadership — The combined company will have more than 3800 total employees, more than 500 quota-carrying salespeople, more than 1000 customer-facing staff in technical support, education, and professional services, more than 700 alliance partners, and more than 16 million licenses. Crystal Decisions leads the enterprise reporting segment of the BI market, and has been the fastest-growing vendor in the BI market, having achieved 30% annual growth in 2002. For the twelve months ended March 2003, Crystal Decisions' revenue was $270 million, with an operating margin of 14%. Crystal Reports, the company's flagship product, has shipped over 14 million licenses and is the most widely used report authoring tool in the market. With Business Objects' ~$470 million, the combined firms will have fiscal 2004 revenue approaching an estimated $800 million, and a customer base of more than 40,000.

  2. The strongest, most complete product line — By combining the two companies' product lines, Business Objects touts to be able to meet the needs of virtually all BI users and provide a strong product offering in most BI market categories. Business Objects has long served the "power users" in organizations through its ad hoc query, reporting, and analysis capabilities, and it has recently targeted executives with its new dashboard, scorecard, and enterprise performance management (EPM) capabilities, launched earlier this year. Crystal Decisions, on its hand, is the solution of choice for a very large population of report consumers throughout organizations. Together, the two companies hope to offer a broad product line that meets the needs of all types of enterprises and all types of users.

  3. A powerful range of distribution channels — The combined company should benefit from strength in distribution given it will be able to leverage:

    • Crystal Decisions' more than 350 OEM partners, including Microsoft, PeopleSoft, and SAP;

    • Crystal Decisions' reseller, distributor, and inside sales channels;

    • Both companies' enterprise sales organizations; and

    • Business Objects' relationships with major systems integrators

  4. Significant new growth opportunities Including:

    • Cross-selling products between the respective companies' customer bases; and

    • Leveraging respective geographic strengths, in particular, Business Objects' well established presence in Europe, where enterprise reporting is under-penetrated

Hyperion and Brio Software

On July 23, Hyperion (NASDAQ:HYSL), the provider of Business Performance Management (BPM) software, and Brio Software (NASDAQ:BRIO), a provider of BI software, announced that they have signed a definitive agreement for Hyperion to acquire Brio. Under the terms of the agreement, Brio shareholders will receive a combination of 0.109 of a share of Hyperion common stock and $0.363 for each share of Brio common stock. Based on the closing price of Hyperion's stock on July 22, 2003, the transaction is valued at approximately $142 million. Brio shareholders will own approximately 10.5% of Hyperion after the completion of the transaction, which has been approved by the boards of directors of both companies and is subject to customary closing conditions, including the approval of Brio's stockholders and regulatory approvals, and is expected to close in the fourth calendar quarter.

With complementary query and reporting solutions within the Brio Performance Suite 8, Hyperion expects to capture customers earlier in the buying cycle when their needs grow from simple reporting against transactional systems to dynamic performance monitoring of key operational measures to KPI (key performance indicators) dashboards. Hyperion also expects that Brio's improved corporate viability as a result of the acquisition will accelerate the adoption of Brio's products. Hyperion also announced on the same day that it has signed a separate OEM agreement with Brio, under which, Hyperion will immediately begin reselling Brio's enterprise reporting, query and analysis, and dashboarding capabilities to Hyperion customers, which puts its current agreement with Crystal Decisions under a big question mark.

The transaction is expected to be accretive to earnings per share on a GAAP basis in calendar year 2004, with the first accretive quarter expected to be the June 2004 quarter. Upon completion, Hyperion intends to extend and further integrate the Brio platform with Hyperion's applications. Like in the above Business Objects/Crystal case, there is complementary nature of the two products, and Hyperion expects over time to realize revenue synergies including cross-sell opportunities into the combined installed base. In addition, the two companies believe there are significant opportunities for operating cost savings. Combined trailing 12-month revenues for both companies total $613 million, and together, the companies have approximately 2,700 employees. Today, Hyperion has more than 6,000 customers and Brio has more than 10,000 customers worldwide.

Actuate Corporation and Nimble Technology

Not letting the grass grow underneath its feet, on July 29, Actuate Corporation (NASDAQ: ACTU), another BI applications provider, announced that it has completed the acquisition of Nimble Technology, a privately held Enterprise Information Integration (EII) company, founded in 1999 as a result of a five year research project in the Department of Computer Science and Engineering at the University of Washington. Nimble Technology's EII solutions aim at enabling organizations to intelligently harness business information, by utilizing XQuery to simplify the task of data integration when building web services and applications such as enterprise information portals and business intelligence systems.

Two of the cited strengths of the Actuate Information Application Platform are its ability to access multiple data sources simultaneously and access relational and non-relational data sources. By incorporating Nimble's open, XML-based data integration technology into the platform, Actuate's customers should find it even easier to design Information applications that provide an integrated view of their business. Furthermore, the incorporation of Nimble's capabilities is envisioned to enable the Information Application Platform to integrate readily with a broad range of XML-enabled systems.

Geac, SSA Gt. Comshare, Elevon, Lawson Software, and Numbercraft

Last but not least, having realized the cross-selling opportunity, many traditional ERP vendors have lately acquired BI/performance management vendors, such as Geac and SSA GT acquiring Comshare and Elevon. The last one to join the party on July 25 was Lawson Software (NASDAQ: LWSN), a business applications provider to services organizations in the healthcare, retail, professional services, public sector, and financial services, with the announcement of the acquisition of Numbercraft Ltd., a privately held consultancy and provider of analytic applications for retailers and consumer packaged goods (CPG) companies. The acquisition should add quantitative measurement and analysis capabilities to Lawson's Retail suite and should continue the company's strategy of enriching its enterprise applications with targeted technology and intellectual property purchases. The acquisition of Numbercraft is effective immediately, and terms of the deal were not disclosed. The impact of the acquisition on the company's fiscal 2004 operating results is expected to be immaterial.

Numbercraft, based in Oxford, England, has reportedly developed a strong following among leading retailers and consumer goods companies in the UK by using advanced mathematics to help convert large volumes of customer, product and sales data into actionable information. The company counts the four largest grocery retailers in Britain and several of the world's largest consumer goods companies among its customers. Lawson plans to continue Numbercraft's successful consulting business for both the global retail and consumer packaged goods (CPG) markets.

Additionally, Lawson plans to introduce several packaged analytics applications based on Numbercraft's technology. These applications will integrate with both Lawson and legacy retail applications. Lawson retail customers include five of the top 10 US-based retailers, eight of the top 20 apparel retailers, seven of the top 25 grocery chains, 23 of the top 100 restaurant chains and 20 of the top 100 specialty chains.

This concludes Part One of a three-part note.

Part Two will discuss the Market Impact.

Part Three will cover Competition and make User Recommendations.

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