In our post Enterprise Software: Is there any one left to buy? we listed the best candidates to be acquired within the lucrative Business Intelligence (BI) and Data Warehousing (DW) industry:
- SAS (Private)
- Informatica (NASDAQ:INFA)
- MicroStrategy (NASDAQ:MSTR)
- Netezza (NZ)
- Teradata (NYSE:TDC)
We have ruled out privately-held SAS because they are very reluctant to be acquired. (If they were willing then IBM would likely have bought them versus SPSS (SPSS)…no offense to SPSS but SAS is the 800-lb gorilla in the business analytics segment.)
The Usual Suspects
The high tech Titans - IBM (NYSE:IBM), Hewlett-Packard (NYSE:HPQ), Oracle (NYSE:ORCL), Microsoft (NASDAQ:MSFT), SAP (NYSE:SAP) – are already very active in the DW/BI industry selling software, services and in some cases hardware. Are any of the acquisition targets on our list attractive to the Titans and would impact their market presence?
Oracle, SAP and IBM are top of the heap built with their previous acquisitions. It’s likely that they’re on the prowl for these larger acquisitions. (Oracle is always a wild card and sometimes acts as if it was the NY Yankees of software firms.) This leaves one Titan in our group, HP, which must be feeling it is being left behind. Sure it picked up EDS a year ago in services and has been squeezing out costs (it is awesome at that!). But the core of HP’s business is printers, printer supplies and low margin PCs. That generates a lot of revenue but it does not provide synergy for your services group to do the high-end systems integration work that IBM, Oracle and SAP services do. HP could try to boost its hardware revenue by acquiring either Teradata or Netezza, but that is not the break-out strategy they need and it just creates competing hardware lines that cannibalize each other.
HP already offers NeoView as their BI/DW appliance and sells a lot of hardware that is used in BI/DW implementations today. The break-out move for them is to acquire both Informatica and MicroStrategy. That vaults HP into the upper echelon in BI/DW markets coupling one of the best (or the best) data integration platform with a BI suite on par with anything the other Titans offer. HP can then move its EDS resources into higher end SI work and can finally leverage its purchase of Knightsbridge into projects bundling its hardware, software and services for years to come.
Throw in Tibco (NASDAQ:TIBX) and HP could think about increasing revenue, profit and margins by growth rather than solely by cost cutting and waiting for a general IT recovery to lift printer and PC sales.
That leaves the two BI appliance vendors up for grabs. If not the usual suspects then who? There are two hardware titans, EMC (NYSE:EMC) and Cisco (NASDAQ:CSCO) to make some bold moves. EMC has been increasing its software exposure and made a bold move by acquiring VMware a while ago. Cisco has decided recently to go head-to-head with its former partners by selling servers and should be looking at how to strengthen itself against its former partners.
Cisco is the bigger firm and needs to make a much bolder statement than EMC. Cisco should pick up Teradata, thereby in one move acquire hardware, software and services assets to compete against the other Titans. This moves it out of its networking gear comfort zone, but every tech firm, if it dominates its market, needs to be looking for other markets to penetrate. Its ticket is Teradata.
EMC, with much less resources at its disposal, should acquire its fellow Massachusetts firm Netezza (with their respective headquarters just miles apart). EMC built its franchise with excellent engineering in hardware and software just as Netezza is doing. From an engineering and marketing perspective this combination should be very symbiotic. It is a way for EMC to play with the other Titans, leverage the massive amounts of their storage used for BI/DW and provide the boost Netezza needs to become a major player.
These predictions are the bold bets that the Titan acquirers should make. But oftentimes companies are too locked into their current thinking that they do not even think outside the box. If the Titans do not buy these firms, then others, who do think out of the box, will consider them. You may be surprised as to who make the acquisitions.
The firms we are mentioning as acquisition targets are enjoying solid growth, but in the long-run it is likely the Titans will encroach on their market share. For both parties, the best time for these mergers is before the IT boom gets too far along.
Disclosure: I have current stock positions in the following companies listed in this post: INFA, NZ, ORCL, TBX, TDC.