SAP buys Business Objects, Oracle bids on BEA Systems: Why the software M&A fest?

It's as if M&A is in overdrive for the software space. SAP AG (ADR) (NYSE: SAP) agreed to pay $6.7 billion for Business Objects S.A. (ADR) (Nasdaq: BOBJ). And, of course, today Oracle Corporation (Nasdaq: ORCL) announced a $6.6 bid for BEA Systems, Inc. (Nasdaq: BEAS).

What's going on here? Well, I had a chance to interview an expert on the topic: David O'Connell, who is a senior analyst at Nucleus Research.

Q: What's your take on the recent activity?

A: "What's driving this is that SAP and Oracle both want to be the biggest kid on the block. They each want to be the only vendor that companies turn to when they buy software. Oracle buys Hyperion, so SAP buys Business Objects. Oracle may buy BEA, so maybe SAP will buy a vendor with a strong integration or SOA offering. It's always hard to tell who's winning. The good news is that end users can be the winners if they say to their account representative, 'hey, I'm buying almost all my software from you, so prices have to come down, and deployments have to be flawless, or I'll ruin your holiday by taking all that business to your rival.'"

Q: Why now?

A: "Because SAP and Oracle both need new customers. The market for selling major applications, especially ERP, to the largest companies is pretty saturated. So SAP and Oracle need new ways to grow revenues. They are starting to go head to head with one another in the market for smaller companies, where Microsoft (Nasdaq: MSFT) dominates. Smaller companies have smaller IT staffs and less time to dedicate to IT. So SAP and Oracle want to court these customers with full product suites, the benefit of one stop shopping, and the alleged benefit of integration among their acquired applications. Buying new products and customers through acquisition is another way to grow revenues.

"Oracle's bid for BEA is a great integration play. Oracle has bought a lot of solutions over the years, so it is putting a lot of development and money into Fusion, which gives customers ways to create integration among their various Oracle applications. BEA basically helps companies integrate their various applications. So BEA is a logical way for Oracle to create integration among its acquired products, and for Oracle customers to create integration among their Oracle solutions. I don't see who else would come to the table. Business Objects will be a huge integration challenge for SAP, so I don't think the timing would be right there. Buying BEA would be duplicative for HP (NYSE: HPQ) and CA (NYSE: CA), who already have lots of integration capabilities in their offerings."

Also, if you want to check out other recent M&A deals, click here.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements.