M&A Alert - May 12, 2010
SAP Buys Sybase, Expands Mobile Capabilities
Overview
On May 12, 2010, SAP (NYSE: SAP) announced that it has agreed to purchase Sybase for $5.8b in cash.
Target Description
Sybase offers enterprise database, analytic and mobility products. Sybase has 10,000 database customers and 2,500 customers use its analytics products. Sybase’s mobile products include 1) SMS aggregation services (access to carrier networks) which deliver up to 1.5b mobile messages on a daily basis to 4b mobile subscribers, across 850+ operators. and 2) middleware that facilitates enterprise applications running on mobile devices such as the iPhone, Blackberry and Google’s Android. Upon acquisition, Sybase Management is to join SAP and Sybase will continue as a stand-alone business unit within SAP.
Buyer Description
SAP offers a full suite of enterprise applications including customer relationship management, supply chain management, product lifecycle management, business intelligence and analytics (via the acquisition of Business Objects) and business compliance and governance. New co-CEOs Bill McDermott and Jim Hagemann Snabe were the key executive sponsors of the acquisition.
Transaction Parameters
SAP will use its existing cash and €2.75b in a concurrently arranged loan facility to pay $5.8b ($65 per share). In FY 2009, Sybase’s total revenue was $1.1.b, of which $371mm was from its mobile business (iAnywhere and Sybase365) and $869mm was from the database business. In FY 2010, Sybase estimates its mobile business will grow to in excess of $400mm. The transaction is expected to be accretive to SAP earnings per share for calendar 2010.
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| Enterprise Value | $5.8b |
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| Purchase Price Multiples(1): | |
| LTM Revenue | 4.9x |
| LTM EBITDA | 15.7x |
| LTM Net Income | 33.0x |
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| Premium Paid: | |
| 1 day prior to announcement | 56% |
| 30 day average prior to announcement | 45% |
| 90 day average prior to announcement | 44% |
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1) Sybase’s LTM is as of 03/31/2010 based on LTM Revenues of $1.2b, LTM EBITDA of $371mm, and LTM Net Income of $176mm
Strategic Rationale
SAP is searching for revenue growth vehicles and increased earnings. Sybase brings a nicely profitable, although niche, database business and a relatively small but higher growth mobile infrastructure software business. While the purchase price is fairly high, SAP achieves both objectives with this acquisition. Sybase also positions SAP well as enterprise applications extend themselves to a broad variety of network-connected mobile devices.
Architect Partners’ Observations
This is another important step toward establishing the enterprise “credibility” of mobile computing. While much of the recent innovation within the mobile sector has been driven by consumer applications, there are many existing and new opportunities to “mobile extend” traditional enterprise applications as well as perhaps create new categories of enterprise-oriented software. This acquisition comes on the heels of another milestone transaction announced last week, HP’s purchase of Palm, the creator of an attractive mobile operating system, WebOS, and a mobile handset business.
Sybase lost the enterprise database wars many years ago but has done an admirable job at maintaining a niche position with particular strength within the financial service sector. Sybase’s mobile efforts were started a number of years ago as an attempt to catalyze growth. While slow in taking off, Sybase has developed a solid mobile product set which was certainly the most attractive element to SAP.
This was an attractive transaction from a financial perspective for Sybase; representing a very healthy stock price premium and rather high valuation multiples of revenue and earnings.