I'd like to share an article that my colleague, Christopher Baum, recently wrote on HP's merger and acquisition strategy. Christopher is an independent analyst who has significant experience in the IT industry, and I thought he had some great insight to offer on HP's future strategy. HP has been in the news as of late with Leo Apotheker's appointment as the new CEO. Leo has a strong vision for the future of HP. It will be interesting to see what his M&A strategy is moving forward. Here's what Christopher had to say:

SAP

There is an elephant in the room. As HP contends with public relations fallout from previous CEO Mark Hurd and first quarter drops in two of its largest divisions, new CEO Léo Apotheker needs some success. His previous firm, SAP, could be a very good acquisition for HP for the following five reasons:

Leadership: Before Apotheker was CEO at HP, he was forced out as SAP’s CEO. He is intimately familiar with the synergies between the two firms. In addition, there is always the allure of a little payback.

Oracle: The HP-Oracle relationship has deteriorated steadily since Oracle’s acquisition of Sun Microsystems in 2009. Oracle hired Hurd after his release from HP; HP responded in court. Although the two firms reaffirmed a commitment to a long-term partnership via joint press releases in September 2010, Oracle CEO Larry Ellison has since thrown down the gauntlet. In December 2010, Ellison announced a new computer line that would compete directly with HP servers. An SAP acquisition would allow HP to respond on Oracle’s home turf.

Politics: February’s announcement that the Duetsche Boerse has been in talks to acquire the New York Stock Exchange raised political issues, among others. The acquisition of a major German firm by an American holding could relieve some of that pressure.

Fit: The addition of a premiere enterprise software suite to HP’s line of hardware would make the organization truly a one-stop shop for enterprise IT.

Geography: SAP’s North American headquarters is in Newtown Square, PA. HP has major installations in King of Prussia, PA (literally up the street) and in Paramus, NJ, only 120 miles away. SAP and HP jointly run the SAP-HP Competence Center in Wallorf, Germany, next to SAP’s world headquarters.

The first barrier to such a partnership is that SAP has stated as recently as March 2011 that it is not for sale. It would also have to pass regulatory muster in both the European Union and the United States. Still, it makes a lot of sense for both firms, with the mostly likely timing in 2012.

Database

As HP expands its enterprise software suite, a key component should be an enterprise database solution. HP’s ability to deliver high-end workstations and storage provides an enterprise-level platform. Conventional relational databases, including Oracle and SQL, are not the future. One of the compelling reasons for relational databases is to reduce storage requirements by minimizing data duplication. This was valid when storage prices were high, but with street prices for terabyte drives as low as $60, the price of storage is no longer a consideration.

HP would do well to position itself for the post-relational world by acquiring expertise for a next-generation database. 10gen has experience in developing, installing, and supporting the open source database MongoDB, which would position HP well as both a database software provider and a cloud-based database services provider. HP desperately needs an enterprise database solution. Expect a move in 2011.

Business Intelligence

Whether an organization has actual or virtual IT infrastructure, it always has actual business concerns. The key to good management is timely access to appropriate and accurate business intelligence. SAS CEO and co-founder Jim Goodnight turned 68 in January 2011. While to all reports he remains in robust health physically and mentally, he has to be concerned with long-term viability for SAS. The SAS culture of social responsibility would be a good fit with HP’s culture, and the product line would extend HP’s capacity to provide transparency for client’s IT and business operations.

Should SAS, the world’s largest privately held software firm according to Forbe’s, be too much to take on, smaller alternatives exist. Microstrategy has had a partnership with HP for more than decade and has a solution set optimized for HP technology. SAS is a long shot and would be an expensive purchase; if it occurs it would be in 2013 or later. Microstrategy is more likely and the potential to be more immediate; late in 2011 is a likely time.

Graphics

HP has made several investments in large-format printers over the past decade. However, the software to drive them is limited to a few verticals and a lot of third parties. Autodesk would be excellent strategic investment for HP. The graphics company saw fourth quarter profits rise 23%. Its cache of design software would both leverage HP imaging hardware plus further HP’s 3D visualization. Autodesk would be a good target for 2011.

Medical Imaging

HP has moved aggressively in healthcare. A February announcement introduced HP Digital Health Solutions to help healthcare organizations to become “Instant-On Enterprises.” While the announcement focuses on overall enterprise solutions, it demonstrates HP’s commitment to the sector. One area where HP needs an investment is medical imaging. It already provides networking, workstation, and storage solutions supporting healthcare Digital Communications in Medicine (DICOM) standards

Hermes Medical Solutions, based in Stockholm, provides solutions across a variety of medical disciplines from cardiology to veterinary scintigraphy. The acquisition would expand Hermes’ presence in the Americas, solidify HP’s presence in European healthcare, and provide a daunting hardware/software solution set to the marketplace. An HP acquisition of Hermes would be a strong move in 2011.

Consumer Multimedia

On the consumer side, HP has focused on multimedia services acquisitions such as Snapfish in 2005 and Melodeo in 2010. Corel Corporation has photo editing and multimedia authoring tools that would round out HP’s offering on the desktop, easing its transition to the cloud. Ironically, the WordPerfect Office portion would have little value to HP and could be spun off to a separate entity, which is how WordPerfect started back in 1981. HP needs to beef up its consumer offerings; Corel would be strong addition in 2011.

Network and Systems Management

HP Business Technology Optimization (BTO) solutions are built upon HP’s OpenView technology for network event and performance management. The firm’s solutions have expanded over time to include application management and service desk. The solution set offered by CA Technologies melds very well with all of the enterprise IT hardware offered by HP in addition to instrumenting the enterprise software such as that offered by SAP. Furthermore, the command-and-control features of the married product lines can be easily extended to cloud-based operations. There are alternatives to CA Technologies as well. Both Software AG and BMC are viable alternatives, although neither is as complete a solution as CA.

Of the three, CA is most likely but it is doubtful that BTO would be the acquisition in a building year. Look for HP to make a purchase in 2012.

Linux

With last year’s purchase of Palm, Inc, HP became the only hardware manufacturer that provides systems from handhelds to high-end servers. From Web-OS to HP-UX 11i, it also owns operating systems for all of its computers except those that run on Windows. While HP has supported Linux for years, it has always been a sideline business. Bringing a company like Red Hat into the fold would give HP the ability to control operating systems that cross its entire hardwire line. Of course, Windows would remain an option for AMD- and Intel-powered PCs. This should be a priority for HP, and if it occurs, sooner is better.

Corporate

Three possible targets would integrate so pervasively into HP that they can only be categorized as corporate acquisitions. These are:

1. Adobe: In the post-relational database environment, the document rules. And Adobe rules the document. While PDF is now a standard, Adobe’s document handling infrastructure allows enterprises to bundle a document’s context with its content. This would be large acquisition that could start with a defined partnership in 2011, culminating with a purchase in 2013.
2. Symantec: HP has invested in security technology. But Symantec would give it both desktop and enterprise security solutions that cover almost all of HP’s computing hardware. HP needs a more comprehensive security suite by the end of this year.
3. VMWare: In the grey area between glass rooms and cloud computing is virtualization. VMWare supplies software that makes a single physical server appear to be several virtual servers. Virtualization can increase security and ease management for individual applications or user classes. The firm would be a good candidate for HP this year.

Some Assembly Required

With all of these components, HP becomes the only firm that can supply end-to-end enterprise IT, including hardware and software, either on premises or under the Infrastructure-as-a-Service model. HP could supply all of the IT hardware, including smart phones, handhelds, desktops, workstations, and servers. The expanded BTO offerings allow complete control and situational awareness of the enterprise’s computing and communications systems. The enterprise business software would track, well, all of the business stuff. HP can leverage its existing business continuity sites to jump-start an IaaS offering. Adobe technology would allow enterprises to encapsulate business processes within documents, and 10gen would store it all. Autodesk, Hermes, and Corel would drop directly into their respective business units.

Acquisition Horizon

The projected timing, size, and likelihood of each of the discussed acquisition targets is illustrated in Figure 2. The Acquisition Horizon. The position of the firm’s logo relative to the horizon in perspective shows the predicted timing. The relative size of the logo shows the size of the firm’s revenue. The transparency of the logo shows the probability that the acquisition takes place.

What do you think? When do you think HP will acquire the mentioned companies?

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Footnotes: This article originally appeared on Software Advice, a free online resource for mrp software. You can view the original article at HP Mergers and Acquisitions: Who's Next