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Informatica: The last enterprise software indie?

Will Informatica be snapped up like Hyperion, Business Objects and Cognos -- or will it be the last indie enterprise software vendor standing?

The logic driving the mergers and acquisitions mayhem in the enterprise software arena can be contradictory. Some argue that enterprise software's "maturity" is driving consolidation. Others, citing the business intelligence boom, claim that the potential for "hockey stick growth" is what made Hyperion Solutions Corp., Business Objects SA and, last week, Cognos Inc. ripe for the plucking.

By either line of reasoning, software vendor Informatica Corp. would likely appear high on any list of buyout targets.

Since 1993, the Redwood City, Calif., company has been providing software to help companies clean, transfer and otherwise manage their data. Its PowerCenter suite has long been one of the most popular extract, transform and load (ETL) tools around, with about 4,000 installations at 2,900 companies.

"What Informatica does is undervalued," said Rebecca Wettemann, an analyst at Wellesley, Mass.-based Nucleus Research Inc. "Delivering a project is easy. Delivering it full and on time is harder. People get in over their heads with the complexity of the data. Informatica is really good at minimizing those problems."

"While some people will argue that IT doesn't matter, no one would say data doesn't matter," said Informatica CEO Sohaib Abbasi in an interview earlier this month.

Tough space, but no hidden agendas

Despite its lack of glamour, ETL -- which Informatica calls "data integration" -- is a tough space. Longtime competitors include Oracle Corp., Microsoft Corp. and IBM, which bought Ascential Software Corp. two years ago. Newer players include Sybase Corp. and SAS Institute Inc., which announced tools in April 2006 to complement its data warehousing software.

Abbasi said Informatica has been able to carve out a living by staying ahead technically as well as reassuring customers that they aren't being pushed to migrate.

"We don't have a hidden agenda to promote one database or another," he said. "Our neutrality assures that our customers are never locked into a single vendor."

That also lets Informatica work with direct competitors. For instance, it has inked marketing deals in the past half-year with both SAP AG and Cognos, which now that it is part of IBM, is a direct competitor to SAP.

"I doubt that deal would have been inked if IBM wasn't sincere about Cognos retaining its independence in working with existing clients and partners," said Charles King, an analyst at Hayward, Calif-based research firm Pund-IT Inc.

A rising BI tide lifts all boats

Abbasi said Informatica is benefiting from the same BI boom that led to the acquisitions of Cognos by IBM, Hyperion by Oracle and Business Objects by SAP. (The only uncompleted acquisition, Oracle's proposed $6.7 billion offer for BEA Systems Inc., would bring it enterprise application integration capabilities similar to data integration.)

In its most recent quarter, 30% of the deals Informatica signed for more than $300,000 included the real-time BI option in PowerCenter 8, Abbasi said.

Not only is Informatica benefiting from BI demand, it is also forging ahead in nascent areas such as data integration for software as a service (SaaS).

Informatica has two main SaaS services today. One converts Salesforce.com data to Google Spreadsheets or to an on-premises database.

"It's as simple to use as Amazon.com," Abbasi said.

Another assesses the quality of data held in a Salesforce.com repository, he said.

In SaaS, Informatica is targeting line-of-business users, rather than IT managers, who are the predominant buyers of on-premise versions of PowerCenter, he said.

"There is zero cannibalization," Abbasi said.

With only about 50 SaaS customers today, Abassi acknowledged that SaaS's contribution to Informatica's bottom line won't be significant until "a couple of years from now." But he asserted that SaaS "has allowed Informatica to distinguish itself, as we have a more comprehensive offering than competitors many times our size."

Happily independent...

Moribund for several years, Informatica has registered more than 20% annual growth since Abbasi joined Informatica in July 2004 from Oracle, where he had worked 22 years and most recently served as senior vice president in charge of tools and education.

Fiscal year 2006 revenue was $325 million.

Revenue in its 2007 third quarter was $96 million. By fiscal 2008, Abbasi said he expects the company to be pulling in more than $100 million a quarter, and up to $450 million for the entire year. Informatica's stock price has risen 160% since Abbasi took over.

About the only hiccup was Informatica's announcement last Friday that chief marketing officer Brian Gentile had resigned.

The crush of acquisitions makes Informatica's products more desirable to end users, Nucleus' Wettemann said.

"If you are a Business Objects user and running Oracle rather than SAP, Informatica becomes more valuable as Business Objects' app becomes more SAP-centric," she said.

All of those factors contribute to speculation that Informatica is on the block.

The most likely buyers would be IBM, Oracle or SAP, said Wetteman.

But Abbasi insists that Informatica would be happy to stay independent.

"Given the success we've had with our strategy of being singularly focused on data integration, we remain focused on stand-alone execution," Abbasi said.

And yet...

At the same time, Informatica's board has "the fiduciary duty to consider all our opportunities," Abbasi said. He declined to confirm or deny whether Informatica has spoken with any potential buyers.

So if Informatica were playing hard to get, how much might it be worth to a suitor?

Certainly not as much as Business Objects, Cognos or BEA, all of which boasted annual revenue north of $1 billion, but more than Informatica's $1.42 billion market cap, Abbasi said.

For one, Informatica plans to sustain 20% annual revenue growth or better -- numbers higher than those other firms achieved in recent years.

"Our ability not only to beat but continue to raise guidance in the last three years is not reflected in our stock price," he said.

Pricing Informatica's stock at the same forward price/earnings (P/E) ratio of 30 that BEA and Business Objects were offered would give Informatica a market value of almost $2 billion.

"If the right suitor and deal came along, it could be a very good time for Informatica to consider a proposal," King said.

On the off chance a deal doesn't work out, Informatica has a plan to become a $1 billion-a-year company, said Abbasi, noting that he's confident the company can achieve that -- and with it a commensurately rich market valuation.

"Look, relational databases were a tough sell in 1982. The story became easier with success," he said. "Informatica's story is better understood today than it was three years ago. I expect it will continue to become better understood."

Revenue in its 2007 third quarter was $96 million. By fiscal 2008, Abbasi said he expects the company to be pulling in more than $100 million a quarter, and up to $450 million for the entire year. Informatica's stock price has risen 160% since Abbasi took over.

About the only hiccup was Informatica's announcement last Friday that chief marketing officer Brian Gentile had resigned.

The crush of acquisitions makes Informatica's products more desirable to end users, Nucleus' Wettemann said.

"If you are a Business Objects user and running Oracle rather than SAP, Informatica becomes more valuable as Business Objects' app becomes more SAP-centric," she said.

All of those factors contribute to speculation that Informatica is on the block.

The most likely buyers would be IBM, Oracle or SAP, said Wetteman.

But Abbasi insists that Informatica would be happy to stay independent.

"Given the success we've had with our strategy of being singularly focused on data integration, we remain focused on stand-alone execution," Abbasi said.

Revenue in its 2007 third quarter was $96 million. By fiscal 2008, Abbasi said he expects the company to be pulling in more than $100 million a quarter, and up to $450 million for the entire year. Informatica's stock price has risen 160% since Abbasi took over.

About the only hiccup was Informatica's announcement last Friday that chief marketing officer Brian Gentile had resigned.

The crush of acquisitions makes Informatica's products more desirable to end users, Nucleus' Wettemann said.

"If you are a Business Objects user and running Oracle rather than SAP, Informatica becomes more valuable as Business Objects' app becomes more SAP-centric," she said.

All of those factors contribute to speculation that Informatica is on the block.

The most likely buyers would be IBM, Oracle or SAP, said Wetteman.

But Abbasi insists that Informatica would be happy to stay independent.

"Given the success we've had with our strategy of being singularly focused on data integration, we remain focused on stand-alone execution," Abbasi said.

And yet...

At the same time, Informatica's board has "the fiduciary duty to consider all our opportunities," Abbasi said. He declined to confirm or deny whether Informatica has spoken with any potential buyers.

So if Informatica were playing hard to get, how much might it be worth to a suitor?

Certainly not as much as Business Objects, Cognos or BEA, all of which boasted annual revenue north of $1 billion, but more than Informatica's $1.42 billion market cap, Abbasi said.

For one, Informatica plans to sustain 20% annual revenue growth or better -- numbers higher than those other firms achieved in recent years.

"Our ability not only to beat but continue to raise guidance in the last three years is not reflected in our stock price," he said.

Pricing Informatica's stock at the same forward price/earnings (P/E) ratio of 30 that BEA and Business Objects were offered would give Informatica a market value of almost $2 billion.

"If the right suitor and deal came along, it could be a very good time for Informatica to consider a proposal," King said.

On the off chance a deal doesn't work out, Informatica has a plan to become a $1 billion-a-year company, said Abbasi, noting that he's confident the company can achieve that -- and with it a commensurately rich market valuation.

"Look, relational databases were a tough sell in 1982. The story became easier with success," he said. "Informatica's story is better understood today than it was three years ago. I expect it will continue to become better understood."


Source:  November 20, 2007 (Computerworld) Informatica: The last enterprise software indie?,Company may be ripe for the picking, but maybe it doesn't want picking, By Eric Lai   

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