SAP Buys Retail-Management Software Company

In yet another reshaping of the software landscape, German software company SAP disclosed Monday that its North American subsidiary, SAP America Inc., will acquire Retek Inc., a retail-management software company, for about $496 million.

SAP wants to boosts its presence in the retail market by expanding its product portfolio to include applications such as demand forecasting specifically built for retailers. SAP plans to integrate Retek's software with its suite of enterprise resource planning, supply chain, and other enterprise software. "There is a fragmented market in the retail industry," said Leo Apotheker, president of global field operations and member of SAP's executive board, during a call with analysts on Monday. "There are many retailers still building their own in-house solutions. We strongly believe, and Retek shares this as well, that by combining our efforts we will have a much more compelling offer and benefit from the emerging trend in the retail industry that will move then away from the in-house development of applications for package software."

Retek, with 2004 annual revenue of $174.2 million, provides Retek Xi, an integrated retail application suite, to more than 200 customers in 20 countries, including Armani, the Gap, and Tesco. Its products include merchandise operations management, supply-chain execution, planning and optimization tools, merchandise planning and optimization, and demand planning. SAP says it plans to retain the expertise and experience of Retek's 525 employees.

Retek's strength in demand forecasting and store technology will help SAP fill in existing gaps in the product portfolio it offers retailers, says Scott Langdoc, VP of retail research at AMR Research. "SAP has had a long-standing struggle with trying to create forecasting technology to underpin its applications and they have been trying to develop this for retail but it's taking a long time," he says. "Retek's demand forecasting accelerates SAP's pervasive forecasting capabilities."

The Retek acquisition may also help SAP tap into a market made up of companies that typically are more comfortable building their own software than buying packaged applications. AMR Research estimates between 45% and 50% of retailers build systems in-house. But for SAP to make greater inroads, it'll have to offer modular software that lets companies plug in only those components they need, says Langdoc.

U.K. retailer Tesco is a perfect example of a retailer that wants a modular, flexible approach to IT. Tesco is moving toward what IT director Colin Cobain calls "Tesco in a box," a set of systems and applications that lets Tesco upgrade as needed the IT infrastructure at its stores. At the core is Retek Xi.

Tesco also runs Oracle's financials, and PeopleSoft's human resource management platform, now also owned by Oracle. (Interestingly, AMR's Langdoc says that since April 2004, Oracle had been actively pursuing Retek, but its PeopleSoft obsession took it off-track.)

SAP executives couldn't provide an integration road map, but analysts say Retek's platforms should integrate easily with SAP's. Retek's software is built on open systems, Java, and thin-client standards, much of the underpinnings that make up SAP's retail offering. "I think integration will be a little faster than what many people think," Langdoc says.

Under terms of the deal, SAP will pay $8.50 for each Retek share, representing a 42% premium over the closing price of $6 on Friday, SAP says. The merger has been approved by Retek's board, which unanimously recommended that shareholders accept the bid. The aggregate transaction value is about $394 million net of Retek's existing cash and investments.