Oracle Buys Hyperion Solutions for $3.3 Billion

Published: March 8, 2007

by Timothy Prickett Morgan

Database, middleware, and application software powerhouse Oracle went on an acquisition hunt again last week, and captured Hyperion Solutions for $3.3 billion.

Hyperion's business intelligence tools for Windows, Unix, and Linux platforms, called System 9 BI+ collectively, are a good fit for Oracle, which needs to bolster its tools for helping companies sift through mountains of information contained in their disparate databases. The Essbase multidimensional OLAP server that is at the heart of the System 9 BI+ tools has been available for more than a decade on the OS/400 and i5/OS platform through a licensing arrangement with ShowCase, which was acquired by BI tool maker SPSS in early 2001. What Oracle will do with the relationship with SPSS as it relates to Essbase/400 product and related tools, which are now branded under the ShowCase name, remains to be seen. Oracle's recent acquisition of PeopleSoft and the backlash it received from customers using J.D. Edwards ERP suites--JDE customers on the iSeries and System i platform, who made up the big portion of the JDE installed base and the majority of maintenance revenues, balked at being pushed to Java and away from RPG--suggests that Oracle has learned to leave well enough alone. But we'll have to see.

It is a wonder that IBM didn't snap up the company, to be honest, since the product is in many ways as good a fit for Big Blue as it is for Oracle chairman Larry Ellison's big aspirations in the enterprise software racket. ERP giant SAP will probably now be tempted to make a retaliatory strike, as will IBM--if either can beat the private equity firms to the punch. That latter is not a foregone conclusion, and SAP does not like to acquire companies if it can avoid it. With the stock markets of the world looking a little jumpy this week, you can bet that the rich people, foundations, and funds around the globe are looking for easily digestible, profitable, and flippable software companies like Hyperion to snap up. The real wonder is that private equity firms have not already eaten Hyperion. Since the middle of 2002, Hyperion's stock has outpaced the broader U.S. stock markets by a factor of about 3.5. (Some of that was due to the announcement of the Oracle acquisition, of course.)

Before the Oracle deal was announced, Hyperion had a market capitalization of about $2.5 billion; after the deal, that rose to $3.3 billion to coincide with the value Oracle placed on the company. Hyperion has grown from $492 million in sales in its fiscal 2002 (ended June 30) to $765 million in sales in fiscal 2006. Net income has more than tripled, but took a slight dip in 2006 from 2005 to settle in at just under $99 million. The company has nearly 2,900 employees and 600 partners, and is just down the road from Oracle in Santa Clara, California.

That leaves BI software provider Cognos, which is based in Ottawa, Ontario, and which is slightly larger (over 3,500 employees and $877.5 million in sales in fiscal 2006 ended in February 2006), as a probable takeover target. Business Objects is the other obvious takeover target now that Oracle has started a run on BI tools makers; it is based in Paris, France, has around 5,200 employees and the very desirable Crystal Reports business. And, Business Objects, with a market capitalization of just $3.4 billion against sales of $1.25 billion, is a much better deal financially. All three vendors have been under competitive pressure and profits have suffered, so they might welcome being part of a much larger conglomerate. For that matter, SPSS, which offers statistical software for data analysis as well as BI code, is a pretty attractive target, with $261.5 million in sales in its most recent year and a market cap of $677 million.

All four companies are profitable and growing. No way someone isn't trying to buy them. This Oracle-Hyperion deal is just the beginning, and someone may yet come in and try to take Hyperion away.

Oracle expects the Hyperion deal to close in April 2007, if Hyperion shareholders accept it.

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