Following a 2-year expansion into the U.S. retail industry software market, German enterprise software maker SAP AG is building on its market presence in its move, announced Monday, to spend $496 million in cash for web-based retail software provider Retek Inc.
“Acquiring Retek brings a whole new level of industry focus and technical ability to SAP’s product lineup,” says Scott Langdoc, analyst for AMR Research Inc., adding that SAP appears willing to acquire additional retail industry software application vendors.
SAP gains strong capabilities in web-based demand forecasting, demand-driven replenishment and retail planning, and will be able to offer multi-channel capability in order management, Langdoc says. Retek also brings clients like Gap Inc., A&P and Nordstrom Inc., who could benefit from SAP’s strength in enterprise software implementations, he adds.
Minneapolis-based Retek provides an integrated suite of retail software applications and serves more than 200 companies in 20 countries. It posted $174.2 million in revenue last year. Under the terms of the acquisition agreement, Retek will merge with SAP’s U.S. unit, SAP America Inc., and the two companies will decide over the next several weeks whether to keep the Retek name and other brands, a spokeswoman says. The $496 million price is based on an all-cash offering of $8.50 per share of Retek, representing a 42% premium for Retek shareholders.
Henning Kagermann, CEO of SAP, said the Retek acquisition enables SAP to offer a comprehensive set of applications extending from POS systems to supply chain management applications as it seeks to expand in the retail market. “The global retail industry represents a significant growth opportunity for SAP,” he said.
SAP also faces challenges in capturing more of the retail software market with Retek, analysts say. Several existing SAP and Retek applications, including financial planning and supply chain management, directly compete with each other in the retail industry, and SAP will have to decide which of these it will support over the long term, says Paula Rosenblum, director of retail research at AberdeenGroup Inc.
Until now, Oracle Corp. has been the source of the preferred back-end financial software integrated with the Retek suite, but retailers may now be expected to migrate from Oracle to SAP, a move many retailers are unlikely to accept willingly, Rosenblum says. “Retailers are as unlikely to want to take the time and resources to move from Oracle to SAP as they are to move from PeopleSoft to Oracle,” she says. “A different financial package will not help any retailer win the hearts and minds of consumers.”
Rosenblum adds that SAP will also have to address the difficulties retailers have faced in upgrading Retek applications as well as in installing SAP applications. She adds that retailers’ demand for quick returns on investment from software implementations may favor, at least in the short term, niche players like merchandise optimization software vendor ProfitLogic and supply chain software providers Logility Inc. and New Generation Computing Inc.
Retek’s recently launched version 11 of its software suite, Retek xi, is designed to better support integration and scalability, a spokeswoman says.
Langdoc adds that SAP should emphasize the modular characteristics of the Retek software suite. “Retailers want a comprehensive solution but can only absorb in it bite-size chunks,” he says.
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