SAP’s proposed $5.8 billion Sybase acquisition has generally received rave reviews for potential synergies, but big question marks loom relative to its ability to achieve a sufficient return on its investment. SAP, after all, offered Sybase shareholders a 44% premium over the market and, to make matters worse, SAP made its offer immediately before the current market correction.

No question, these factors, combined with normal execution issues and SAP’s scant experience in integrating big acquisitions, will certainly complicate matters. Even so, the acquisition has the potential of producing big gains.

In generally declining order of importance, product synergies include SAP’s access to Sybase’s:

1. Industry-leading SQL Anywhere mobile database and its entire Sybase Unwired Platform suite, which will allow SAP to mobilize its applications, as well as allow SAP customers and partners to mobilize and connect their own applications to those from SAP;
2. IQ analytical database, as a state-of-the-art analytical engine for SAP’s applications and foundation (especially with a Business Objects front-end) for a much-needed integrated analytics appliance; and
3. ASE database, which will provide the bulk of initial revenue and profit attributable to the acquisition, eventually provide SAP with an additional database platform, and may possibly (although this is a long shot) allow it to reduce dependence on competitors’ RDBMS platforms.

(Deeper, much more comprehensive discussions of SAP/Sybase product synergies have been written by analysts including Merv Adrian, Paul Hamerman, Dana Gardner, Dave Kellogg, Curt Monash and Dennis Howlett.)

Access to Sybase’s mobility suite will almost certainly deliver the first, and probably the greatest technology-based benefits. Additional products such as IQ and, to a lesser extent ASE, will provide somewhat lesser benefits and will take longer to integrate into the SAP line.

Sybase, however, will also provide SAP with a number of critical, albeit less tangible benefits. These include Sybase’s:

• Strong position in global-scale financial services, and to a lesser extent telecommunications accounts, into which SAP can sell its software;
• Rapidly growing inroads into the Chinese market;
• Infrastructure technology portfolio which SAP can integrate with its growing portfolio of mid-market and hosted applications into turnkey solutions to smaller customers; and its
• Strong and incredibly stable management team.

This last point merits particular attention. The Sybase management team has been one of the most stable in the IT industry. Much more importantly, it has done a phenomenal job in first stabilizing and then transforming a company that had a confused product line and over-reliance on an aging RDMS with declining market share. Operating on a relative financial shoestring, it stabilized, upgraded the technology of and significantly expanded the market for its legacy ASE RDBMS and developed IQ into industry’s leading columnar analytics database.

Most importantly, it was one of the first companies to recognize the need for—and the first to dedicate itself to building—a comprehensive, enterprise-level platform for mobile applications. From hindsight, this may appear to have been a sure bet. In reality, it was anything but. During the early years, the growth of the enterprise mobility market was far from certain and much larger, better positioned competitors—companies including Microsoft, Oracle and IBM—were talking of making major pushes into the market. And all the while, Sybase had to find the resources required to fund this speculative business while simultaneously struggling to stabilize its legacy RDBMS business.

Not only did John Chen and the Sybase management team successfully navigate the dangerous tradeoffs inherent in reinvigorating a declining legacy business while building the foundation for a still speculative new business opportunity, it did so while slowly, but steadily, growing revenues and operating income. And don’t forget total shareholder value, which it grew from less than $500 million in the late 1990s, to $5.8 billion (which SAP will pay). Best of all, its execs did all while continuing to be some of the nicest, most open people in the industry.

There is no question. SAP must certainly capitalize on the extensively discussed product synergies and the lesser discussed market synergies if it is to derive value from its acquisition. The greatest value, however, may well come from an ability to harness and leverage the chemistry of Sybase’s management team.