Financial terms of the deal were not disclosed but some analysts estimate it to be worth between $200m and $500m. The acquisition is expected to close in June.

Stamford, Connecticut-based OutlookSoft was founded in 1999 by ex-executives of Hyperion, one of the pioneers of corporate performance management, to develop software that helps companies align their business strategy to operational excellence. CPM usually refers to a suite of financially-oriented consolidation, planning, budgeting, forecasting and reporting applications.

SAP and OutlookSoft had no formal relationship prior to the acquisition. However, they share around 150 joint customers.

For the past 18 months or so, Waldorf, Germany-based SAP has been crafting an integrated suite of business software aimed squarely at CFOs, an audience that has eluded its mainstay ERP applications.

That strategy started with the release of mySAP ERP 2005 ERP suite, which includes financial applications. Then last year, SAP snapped up compliance software vendor Virsa Systems to provide the foundation for a new governance, risk, and compliance management business unit. And in February this year, SAP acquired BI stalwart Pilot Software, adding strategy management and operational performance review tools to its expanding NetWeaver BI and analytic applications stack.

The idea is to combine all these products into an integrated suite for CFOs, according to Sanjay Poonen, senior vice president and general manager of analytics at SAP.

OutlookSoft was one of the first specialist CPM providers to cast its technology lot with Microsoft, specifically leveraging the business intelligence capabilities of Microsoft’s SQL Server database platform and Office tools. After Microsoft decided to work on developing its own performance management tools – PerformancePoint Server 2007, which is due to be released in the second half of this year – the company decided to hedge its bets and broadened support to Oracle in April.

In September last year, OutlookSoft re-architected its platform for SOA, adding pre-built Business Process Flows as a way to differentiate its technology as a focused CPM application, rather than a generic toolset.

OutlookSoft 6 was expected to launch later this year, promising enhanced visualization and tighter integration with ERP applications. The status of that release is now unclear.

Going forward SAP’s NetWeaver middleware will most likely replace Microsoft as OutlookSoft’s BI infrastructure of choice. However, Poonen still sees mileage in the Microsoft relationship to complement SAP’s Duet initiative with Microsoft that integrates Microsoft’s desktop Office suite with SAP’s back-end mySAP enterprise applications.

Finance users are keen to be able to access more of the applications they use through the Microsoft Office suite they’re familiar with like the vendor’s Excel spreadsheet, Poonen said.

Poonen even hinted that OutlookSoft could become one of the Duet scenarios. A scenario refers to an integration capability that targets a particular business application.

He pointed to OutlookSoft’s BPFs as an opportunity to build more sophisticated Scenarios around CPM processes.

OutlookSoft’s BPFs map nicely to the types of sophisticated business context that we want to extend our Duet Scenarios out to. And once they’re integrated into NetWeaver, we also have an opportunity to expand the process flows into broader operational areas of performance management, Poonen said.

However, SAP will probably need to do some reworking of the OutlookSoft architecture, which is tied to Microsoft’s SQL Server architecture, to integrate it into its NetWeaver BI stack which includes SAP Business Warehouse and Business Intelligence Accelerator products. Poonen said that SAP would be working to optimize the integrations already forged between the two platforms by the 150-odd SAP customers that already use OutlookSoft.

One of the first things that we’ll be doing is optimizing the integration with BW’s OLAP functionality, which we believe is stringer than the [SQL Server] Analysis Services engine, he said.

Poonen promises the integration to be water-tight, which he said would ultimately prove to be a real competitive edge in the CPOM market.

The level of integration that we’re working towards will surpass the level of integration of everybody else out there, including Hyperion’s CPM platform.

Poonen does not see much, if any overlap with SAP’s existing SEM and financial products. SAP’s BCS financial consolidation tool which will continue to be supported for complex and specialized geographic needs, though SAP will obviously coax users to use OutlookSoft product for basic rollups and consolidations.

SAP’s Business he Business Intelligence Integrated Planning (BIIP) will also hold as the modeling platform for OutlookSoft’s planning system, but with OutlookSoft now acting as the de facto interface for that environment. But somewhere along the line SAP is likely to need to provide deeper integration between the two.

Nor does Poonen see any overlap with Pilot’s strategy management products, which he said focused on Balanced scorecard and Six-Sigma-type applications, and not the deep planning and consolidation applications that for the bulk of CPM.

What remains to be seen is whether SAP will continue to provide heterogeneous platform support for OutlookSoft, particularly Oracle environments.

Poonen, however, said that SAP is committed to providing freedom of choice, even if that means supporting no-SAP platforms. We’re not doing anything to dampen agility and flexibility of OutlookSoft to operate in non-SAP environments, he said. We’ve did pretty much the same thing after the Virsa acquisition, which allows us to go into both Oracle ERP and other non-SAP shops with GRC.

At the time of the acquisition OutlookSoft had around 700 customers, 40% of which are based in the US, and employed 250 staff. Most are through to be joining SAP, including CEO Phil Wilmington, who has led the company for the past two years.

Our future is as an independent company because the key business drivers for performance management go across all the major business intelligence and ERP players, Wilmington told Computer Business Review in an earlier interview in February. But he also added that he was pragmatic about a possible takeover: I’ve learnt never to say never. That comment has now come home too roost.

Wilmington said that his company has been growing at a fair clip, of around 25% annually since its inception and wasn’t looking to be acquired. Indeed, he said the company was considering an IPO before being approach by SAP several months ago.

That said, Wilmington now believes that OutlookSoft will be able to gain more visibility in the market under SAP’s wing.

Interestingly, SAP also gets another ally in its bitter battle against arch-rival Oracle. Wilmington was one of the ex-PeopleSoft executives that fought, unsuccessfully, against Oracle’s hostile takeover of PeopleSoft in 2005.

There is certainly no love lost between Oracle and SAP who continue to bicker about stealing customers.

Independent CPM vendors are now a rare breed in the market following a hive or merger and acquisition activity over the past year.

In April Business Objects announced plans to snap up French financial performance management specialist Cartesis for a cool $300m. But that deal pales in comparison to Oracle’s $3.3bn takeover of Hyperion Solutions, one of the leading BPM proponents in the field, first announced in March.

Rumors also continue to linger that IBM is preparing to make a swoop for Cognos, the other big independent BI and CPM player in the market.

Our View

SAP’s acquisition of OutlookSoft is part of an ongoing strategy to deliver an integrated suite of analytic applications for the office of finance, an area which SAP has traditionally been weak. Hence much of SAP’s early focus will be to service its own ERP installed base with CPM tools, rather than try and steal away business from OutlookSoft’s CPM competitors.

SAP’s CPM arsenal now resembles a three-legged table: strategy management being the top surface and profitability management (courtesy of a reseller deal with Acorn Systems, which increasingly looks like a future acquisition waiting to happen), planning and consolidation. SAP can now boast, what Poonen refers to as, a Power Triangle of financial products for CFOs – consisting of core ERP Financials, GRC and CPM.

From a competitive market perspective this acquisition is also a near-immediate response to Oracle’s recently completed acquisition of Hyperion Solutions. Both companies are looking to grow their market share in more corners of the enterprise applications space, but in contrasting ways. SAP is executing a series of small tuck-in acquisitions of niche players (Pilot is a great example) to flesh out the white spaces in its product lines.

Meanwhile, Oracle is going after larger blockbuster deals – it has spent $25bn on 30 different acquisitions over the past three years – that bring it technology, customers and market share. For example Oracle’s acquisition of Hyperion is widely seen as a direct shot across the bow of SAP, targeting Hyperion CPM customers running SAP ERP systems. Oracle president Charles Phillips has even gone on record saying that Hyperion’s software will the lens through which SAP’s most important customers view and analyze their underlying SAP ERP data.

Interestingly, SAP also gets a bonus with this acquisition – another ally in its bitter battle against arch-rival Oracle. Wilmington was one of the ex-PeopleSoft executives that fought, unsuccessfully, against Oracle’s hostile takeover of PeopleSoft in 2005.