Potential of SAP acquiring Documentum

A couple of weeks ago at EMC World, TSG surmised that the partnership between SAP and Documentum  (IIG – Information Intelligence Group of EMC) might be the first step in a potential acquisition by SAP of IIG.  For those not familiar with the SAP relationship, the new partnership allows SAP to sell the following new Documentum xCP offerings to their customers including:

• Broker Reconciliation for Insurance (targeted Q3 – 2010)
• Automated Banking Sales – (targeted Q1 – 2011)
• Documentum Creation for Claims – (targeted Q1 – 2011)
• Information Inbox for Claims – (targeted Q2 – 2011)

For additional information, view Mark Lewis’s keynote on YouTube here.  While we don’t generally like to promote a TMZ feel for our postings, for this post we will explore the potential reasons for those rumors.

Why EMC would want to shed Documentum?

One major appeal for EMC to purchase Documentum in the first place was customer and sales representative synergy.  It makes sense that the same sales rep can sell more to his client by having more offerings.  This is one reason software companies, and particularly ECM vendors, offer a suite of products.  With EMC/Documentum acquisition, it was thought that the EMC sales reps could (and tried) to sell Documentum to their storage clients.  As experienced by EMC and Documentum, the infrastructure purchase of EMC storage devices or VMWare is very different than the purchase of ECM solutions and required two different sales forces. 

As EMC continues to grow the infrastructure portion of their business at a rapid pace, the fit of Documentum is less and less apparent.  It would make sense for EMC to look for a software partner to team with that might potentially procure the Documentum division.  A good partner would have synergies and extend their current sales model while not cannibalize any of their existing software sales.

Who is not going to buy Documentum

Within the Packaged Software space, according to Fortune back in January, the 282 Billion dollar market is dominated by Microsoft (18%), IBM (8.5%), Oracle (7%) and SAP (4.4%) with the remaining 62% going to smaller companies.   As experienced over the past two years with consolidations, it stands to reason that the top four would consider buying something like Documentum to increase their sales offerings to clients.  Let’s look at each one of these and apply the synergy discussion to likely purchase of Documentum.

• Microsoft – SharePoint is widely successful without Documentum.  Add to that a commodity focused sales force as well as commitment to .Net (rather than Java) and it is difficult to see Microsoft wanting or needing to look for a purchase in the ECM space.
• IBM – IBM is still trying to integrate FileNet into their host of other content management offerings and probably doesn’t need another ECM tool for fear of mixed message to customers.  In regards to synergies, IBM’s sales reps, after pushing why DB2 content management and FileNet is better than Documentum wouldn’t get much traction with their existing clients with a new Documentum purchase.
• Oracle – probably the closest contender in regards to ability to purchase other software companies (PeopleSoft was a Documentum Pleasanton neighbor) as well as synergies in regards to sales reps, customers and technology (Java).  The Stellant purchase and wherever Oracle is going with their offerings might be a sticking point.  Also, it is worth remembering that Documentum ran from Oracle to EMC because Dave DeWalt (former Documentum CEO) and others in charge of Documentum at the time didn’t want to become part of Oracle.  While many of those people might be gone, Documentum has always been proud of not being Oracle. 

Why SAP is the best choice

SAP is unique in regards to the other three in that their strong customer base isn’t buying ECM from them at the current time although SAP has tried to add it in the past.  Documentum’s partnership with SAP is focused on adding financial services offerings, something Documentum or SAP would like to target to add to their offerings.  SAP also has a number of other characteristics including:

• Sales Channel Synergy – Purchasers of SAP are very similar to purchasers of ECM.  SAP’s sales reps would be able to easily extend their expertise to sell Documentum to existing clients.  It is difficult to see Documentum reps selling SAP but we (TSG) would envision that some sales reps would be able to make the transition.
• Enterprise Customers that are “Locked In” – SAP has a strong client base that isn’t going anywhere.  After the effort to install SAP, it is difficult to see customers leaving to repeat that effort with other software.
• High-End Pricing – to get the most out of a Documentum purchase, the buyer would have to have consistent pricing with Documentum’s current pricing model.  SAP has established itself as premium pricing consistent with Documentum’s current model.
• BPM Desire – multiple sources have reported that SAP is looking for a potential large acquisition in the BPM space, where Documentum has positioned xCP.

When would it happen?

Determining when an acquisition would happen depends on numerous decisions including price (something that we have no insight into).  Documentum’s lack of R&D investment over the last year coupled with an aggressive push for sales via software audits and reduction in engineering staff would lead some to believe that Documentum is cleaning up their books to increase their value for a sale in the short-term.  A counter argument is that the SAP partnership could be seen as a “trial” period to see if the sales synergies are really there and pushing the acquisition to only happen if/when the partnership is successful.   Hard to put a realistic date out there given those counter arguments but realistically, if things work out, a 1-2 year timeframe would be consistent with other similar acquisitions.  

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