The Business Objects Acquisition of Cartesis

It's happened again. As soon as I publish a monthly newsletter issue one BI firm acquires another, so I write a second issue for the month.

This time it's Business Objects that is acquiring Cartesis. And it's time for me to break out the big fish/small fish graphic again.

I took advantage of some free time to write about it while my grad students were taking their final exam Wednesday night.

I hope you find the analysis useful.

Rick Sherman, Athena IT Solutions

Business Objects gobbles up Cartesis

Business Objects yesterday announced its intent to acquire privately held Cartesis, a corporate performance management (CPM) software provider, for approximately $300 million in cash.

Headquartered in Paris (a few miles from Business Objects’ Paris headquarters), Cartesis had sales of approximately $125 million in the trailing 12 months with 1,300 customers. A large portion of their customer base is located in Europe but they have been expanding into North America and other international markets.

Why Cartesis, why now?

CPM is a growing market, but it is still relatively immature. Almost two thirds of the money spent on CPM is in services rather than software. One of the inhibitors to CPM, from a software solution perspective, is that most companies offering solutions have business process specific applications, in some cases a lot of them, but they are not really enterprise-wide in scope. A company cannot get all their CPM needs from one vendor and that has put a constraint on wide adoption. This phenomena is spurring CPM vendors to expand their offerings either organically (developed internally) but more often then not they have done so by acquisition.

Business Objects previously bought CPM providers SRC and ALG Software to jumpstart its CPM offering. Cartesis expands on this theme. Cartesis itself acquired INEA and Advance Info Systems to speed along its CPM offerings.

Cartesis’ CPM offering is concentrated on financial reporting, consolidation, planning and compliance management. These applications, targeting the CFO, are the CPM offerings that are showing the greatest growth. There are strong business drivers along with a long history of CFOs struggling to gather integrated enterprise-wide data that make this the sweet spot for CPM.

Tactically, this is also Business Objects answer to Oracle’s acquisition of Hyperion, which is arguably the 800-pound gorilla in the financial-oriented CPM space. Hyperion is often considered a key partner in corporate CFO offices.

What is the impact?

The pecking order in the consolidating software market is ERP vendors & IBM at the top of the food chain, then BI vendors and, finally, many market niches such as CPM and other emerging solutions.

The small fish gobble up the smaller fish until the bigger fish (relative to them) gobbles them up. Niche CPM vendors are not likely to stay independent as the CPM market expands and then inevitably matures. They will need to grow and then be acquired for their technology to endure in any substantial way. That doesn’t mean that there won’t be many CPM vendors left in the years to come, but just like the BI and ETL marketplace, there is only a certain size that these companies can grow to when facing software behemoths.

We have discussed in other blogs and articles (here, here, and here) that the BI pure-plays are themselves acquiring smaller software firms and then they are being acquired by the software behemoths.

Business Objects is over a billion in sales and is truly a market leader from many perspectives. CPM is certainly the solution umbrella that companies are using to support many business initiatives nowadays. Regardless of whether that CPM solution is bought off-the-shelf as a CPM software package or it is a homegrown solution using BI technology, Business Objects stands to gain from expanding their CPM portfolio.

As an aside, I read in a number of articles in the last 24 hours how CPM consolidation is being driven by customers and not the software vendors. I both strongly agree and disagree with that statement. Yes, companies want more comprehensive CPM offerings, which would lend truth to the statement that customers are driving this consolidation.

BUT let me turn the customer desire around. What about SOA and web services? Don’t we read in the literature from the same vendors selling CPM solutions that SOA will enable you to pick and choose what components you use from what vendor or even homegrown applications? Customers want to be able to select a portfolio of CPM applications, but does it have to be from the same software vendor?

Actually wouldn’t it be great if SOA did allow you to pick and choose (I digress!) The reality is that CPM consolidation is being driven by software vendors that want to expand their offerings and their revenue (nothing bad about profit motive), as well as maintain their existence (or increase their buyout price!)

Thumbs up or down

Business Objects has an excellent record of absorbing companies and their technologies from a customer perspective. Two acquisitions that have bolstered Business Objects’ solutions are Crystal Reports for production reporting and Acta (now Data Integrator) for data integration. Both products filled in holes that were critical long-term for their CPM offerings.

There is potentially overlapping functionality between Cartesis and Business Objects’ current CPM offerings, especially in the area of Planning and Budgeting. In addition, Cartesis has some partnerships with competing BI vendors that will most likely be discontinued after a while. But this overlap or conflict will likely be handled smoothly by an acquiring company with the experience and depth of Business Objects.

Will the Cartesis acquisition be as successful in the marketplace?

Oracle/Hyperion and Cognos have a head start, particularly in the financial-oriented CPM space. SAP, Microsoft and other ERP vendors are also expanding their offerings in BI and CPM and are likely to be formidable competitors. In this market, though, it certainly made sense for Business Objects to be an acquirer.