Software deal puts Cognos, others in spotlight

NEW YORK (Reuters) - Software company SAP's (SAPG.DE) 4.8 billion euros ($6.8 billion) takeover offer for Business Objects BOBJ.PA BOBJ.O has put the spotlight on the remaining players in the business intelligence software market as potential targets.

Cognos Inc CSN.TO, a $3.7 billion company based in Ottawa, Canada, and MicroStrategy Inc (MSTR.O), a $1 billion company based in McLean, Virginia, are seen by analysts as the most attractive takeover candidates, amid consolidation in the industry of helping companies mine mountains of data to detect market trends.

Takeover speculation has long surrounded Cognos, but analysts say the Business Objects deal ups the pressure on remaining business intelligence firms to find partners. Cognos is the largest independent company left in the field.

"There's no question that at this point Cognos, for the big guys, is by far the most attractive company to buy," said Murray Beach, president of technology-focused investment bank Boston Corporate Finance. "They have the right customer base, they have a fully established technology platform, they are a true leader."

"I'd say Cognos won't be independent for more than a year (to) 18 months," Beach added. "They are too attractive a company."

Analysts haven't ruled out a rival bid for Business Objects. Mike Abramsky, analyst at RBC Capital Markets, wrote in a recent research report that while not expected, new bidders may emerge because the business intelligence sector has become strategically important to the large software vendors.

Business intelligence software is used by companies to make sense of customer and employee activity, by pulling together realms of data to analyze it easily.

The main three players in the sector are Business Objects, Hyperion Solutions Corp -- bought by Oracle Corp (ORCL.O) in March for $3.3 billion -- and Cognos. MicroStrategy Inc (MSTR.O) is a smaller fourth player, followed by a host of niche firms.

"In general, I'd say that the software industry is not yet done consolidating," said Cowen & Co analyst Arnie Berman. "There are still too many ticker symbols."

The sector has matured since the dot-come bubble burst in 2000, and companies are now more capable of taking on the risks required to do an acquisition, Berman added. "The result has been that the buyers more or less know what to pay, and sellers have a better idea what they're worth," he said. "So bid-ask spreads are down and there are more deals."

POSSIBLE SUITORS

Investors have long speculated that the most likely buyer for Cognos is International Business Machines Corp (IBM.N) as the pair have a business partnership.

"Oracle drove a stake into the ground with their acquisition of Hyperion," said Beach. "SAP obviously had a good relationship with Business Objects over the years, so this was an extremely logical move. And IBM has had a close partnership with Cognos. So IBM is the clear lead -- they have every reason in the world, plus they have an existing relationship."

Microsoft Corp (MSFT.O) and Hewlett-Packard Co (HPQ.N) have also been mentioned as possible suitors for Cognos.

MicroStrategy, whose software runs within Microsoft's Office system, is seen a likely target for Microsoft.

Beach thinks Microsoft has the most to lose from the SAP-Business Objects deal because it has a close relationship with SAP in the area of business intelligence. Microsoft could target MicroStrategy in response to the Business Objects deal, he said.

Other companies that could be potential targets include Informatica Corp (INFA.O), Actuate Corp (ACTU.O) and Fair Isaac FIC.N, Abramsky wrote.

One obstacle to deals is that valuations of such firms have increased as takeover speculation has grown. Cognos shares have risen 14 percent over the past year, although Beach said the company's valuation was in line with the premiums paid for Hyperion and Business Objects.

The Business Objects deal is also further evidence that the technology sector is still seeing strong deal volume, despite the pullback by private equity firms amid turmoil in the credit markets. Technology bankers say they are as busy as ever, with no letup in the volume of deals to work on.