Analysis: Why SAP Is Buying Sybase for $5.8B

SAP (s SAP), the big German enterprise software company based in Walldorf, Germany, says it’s buying Dublin, Calif.-based database and enterprise software provider Sybase (s SY) for $5.8 billion, or roughly $65 a share, a 44 percent premium over Sybase’s average three-month share price. According to terms of the deal, Sybase is going to operate as a standalone company. SAP is funding the deal with cash on hand and a 2.74 billion-euro ($3.44 billion) loan.

The deal, which is surely going to get Oracle (s ORCL) CEO and Founder Larry Ellison cracking a few jokes, highlights the growing importance of the mobile Internet and modern enterprise, in the process supplanting the PC.

And despite its hefty price tag, it’s been met with the approval of many experts and enterprise analysts. For instance, Forrester Research’s Paul Hammerman believes that “With Sybase Unwired, the mobile apps can be written once and deployed on multiple mobile platforms” and “gives SAP the opportunity to develop new types of business applications for mobile devices.”

Yankee Group analyst Sheryl Kingstone points out “the fusion of cloud computing, application mobility and social media to transform the enterprise mobility space. This deal now gives SAP 2 out 3 in a single purchase.”

Sybase, despite its legacy, has actually been trying to re-invent itself and is less of a traditional database company. It has embraced the cloud (many of its products work with Amazon EC2), has developed in-memory databases and more importantly has been focused on mobilizing the enterprises, which also led to a close partnership with SAP.

“More importantly, they also gain access to the financial services and public sector markets.  On the geographic front, Sybase has strong presence in the China market, an area where SAP sees future growth,” writes R “Ray” Wang on his blog, Software Insider. He points out that at present SAP resells about a billion dollars worth of Oracle databases –- a bad idea considering SAP and Oracle are in direct competition (that is often laced with tart comments by Oracle CEO Larry Ellison.)

About 73 percent of Sybase’s software license revenues comes from the traditional database business, new database business (IQ), business analytics products (RAP) and complex event processing-related products.  In comparison, mobile related products such as SUP, SQL Anywhere and Afaria account for about 27 percent of software licenses. According to some of my sources that know the company well are of the opinion that instead of mobile, the real reason Sybase is growing is because of its analytics-focused products and mobile messaging business.

That said, some believe that Sybase is only a Band-aid for what ails SAP. Over at Forbes, Quentin Hardy brings up an important point when he says that despite this deal, SAP and its troubles are far from over. The company, he says, isn’t big enough and more importantly doesn’t have the ability to be one-stop shop like its rivals IBM, HP and Oracle. However, the rudderless German company does get the go-getting Sybase CEO John Chen, who is widely regarded for his skills in turning around Sybase. He could perhaps be the ultimate winning chip of this deal.