In this final post in what's become a 5-part series looking at SAP's potential to grow through acquisition in the Spend Management market, I'll cover the more general topic of what it takes to succeed in tech M&A -- and why I'm not sure if it's in SAP's current DNA to do an about face on acquisitions, transitioning from pursuing limited strategic moves to becoming a market force on the consolidation and financial deal front. There's an almost universal saying in M&A that "price is what you pay, value is what you get."
Obviously the extension of this is that it's up to the team sourcing, negotiating and most important of all, implementing a deal to create a level of value that goes far beyond the purchase price. Unfortunately this is easier said than done, as any corporate development or management team focused on deals and worth their salt can understand the basics of sourcing and valuation (e.g., based on comparables tying back to revenue, gross profit/net or EIBTDA), but the integration and commercialization component of tech M&A so often remains elusive.
At this stage, I see two primary reasons why SAP will not be able to catch Oracle from a deal operational standpoint. The first comes down to creating a culture of growth focused as much on managing a portfolio as it does investing in and creating new technology assets and IP. Now, don't get me wrong: both SAP and Oracle are homes to huge egos. But Oracle's egos -- going up to the top -- are tied more to simply wanting to win the game than necessarily building the best capabilities. I guess the easiest way to put this is that SAP has always been an engineering-led culture, and despite Oracle's technology leadership in key areas, has always been a customer and business-led environment.
Given this backdrop, I just don't feel that it's in SAP's DNA to adapt to a portfolio strategy of solutions and operating P&Ls with at least some autonomy and independence (e.g., solution branding and functional/development ownership) as Oracle has fostered and accomplished. This will make integrating and scaling acquisitions -- especially at the scale that SAP will need to do it to catch up -- all the more difficult.
The second reason I think SAP will have a challenging time catching up to Oracle has more to do with the corporate culture of "doing deals." As someone who has been involved in tech M&A on and off for nearly a decade, it's always refreshing to see how Oracle analyzes and looks at deals relative to other companies. Oracle is a complete deal machine, and to push a transaction through that does not fall within the financial box of the types of deals they like to do is a corporate development feat indeed. SAP, in contrast, has traditionally required product-level and marketing sponsors to identify and push acquisitions (with corporate development supporting but not leading efforts, in many cases). This has often resulted in smaller deals (e.g., Frictionless, Analytics, Inc.) that are more focused on filling technology and solution gaps rather than the bigger inorganic financial growth picture.
At this stage, if I had to handicap SAP's attempt to catch Oracle on the acquisition front, I'd have to say this is the case of a Messerschmitt Me 323 Gigant trying to catch Mr. Ellison himself in his Gulfstream V or Marchetti jets.