Service Industries in U.S. Probably Expanded at Fastest Pace in Six Months

Service Industries in U.S. Probably Expanded at Fastest Pace in Six Months

Service industries in the U.S. probably expanded in November at the fastest pace in six months, a sign the economy is accelerating in the final months of 2011, economists said before a report tomorrow.

The Institute for Supply Management’s non-manufacturing index rose to 53.8 last month after 52.9 in October, according to the median forecast of 67 economists surveyed by Bloomberg News ahead of the Tempe, Arizona based-group’s data. Others reports may show consumer confidence rose this month and factory orders fell in October.

The services data may indicate broader improvement in the economy at year-end after reports last week showed a pickup in manufacturing, less consumer pessimism and declining unemployment. At the same time, risks remain that Europe’s debt crisis and slower global growth will prompt U.S. companies to cut back.

“We seem to be on more solid footing, but at the same time the external risks have risen as well,” Ellen Zentner, a senior economist at Nomura International Securities Inc. in New York.

Estimates for the services index in the Bloomberg survey ranged from 51.5 to 55. Fifty is the dividing line between expansion and contraction.

A report from the Labor Department last week showed the unemployment rate fell to 8.6 percent last month, the lowest since March 2009, from 9 percent. Payrolls climbed by 120,000 after a revised 100,000 increase in October.

Service Jobs
Employment at service-providers increased 126,000, including a 50,000 gain at retailers on hiring for holiday shopping season. The number of temporary workers rose by 22,300.

Transportation companies are joining retailers such as Kohl’s Corp. and Macy’s Inc. (M) in boosting holiday staff.

United Parcel Service Inc. (UPS) may hire 55,000 holiday workers this year, a 10 percent increase from 2010, to help with shipping gains bolstered by online shopping, the company said Nov. 7. More than 120 million packages may be delivered in the week before Christmas, up 6 percent from last year, the world’s largest package-delivery company said in a statement.

U.S. consumers poured into the malls and took to the Web during Thanksgiving weekend, spending a record $52.4 billion at a pace that may be hard to sustain as the holiday shopping season gets under way, the National Retail Federation said, citing a survey from BIGresearch.

Coach Inc. (COH), the largest U.S. luxury handbag maker, expects an “excellent holiday season,” partly due to shoppers’ “strong interest” in accessories for self-purchase, Chief Executive Officer Lew Frankfort said on a conference call last week.

Holiday Sales
Limited Brands Inc. and Macy’s posted November same-store sales that topped analysts’ estimates as Thanksgiving weekend deals drew record crowds, while chains such as Kohl’s and Target Corp. failed to take advantage of pent-up demand.

Retailers have outperformed the broader market this year. The Standard and Poor’s Supercomposite Retailing Index (S15RETL) rose 5 percent through last week while the S&P 500 Index fell 1.1 percent.

Consumer confidence probably picked up this month, the preliminary Thomson Reuters/University of Michigan survey for December may show on Dec. 9. Confidence rose to 65.8 from 64.1 at the end of November, according to economists’ forecasts.

A report the same day from the Commerce Department may show the trade deficit was little changed in October. The gap may come in at $44 billion, up from $43.1 billion in September, according to the median forecast.

Fewer Claims
Jobless claims probably fell to 395,000 last week from 402,000 the prior week, economists forecast the Labor Department will report Dec. 8.

The ISM services survey covers industries ranging from utilities and retailing to health care and finance.

A report by the same group on Dec. 1 showed manufacturing last month expanded at the fastest pace in five month, boosted by gains in orders and production.

The Commerce Department will report today at 10 a.m. that factory orders in October fell 0.3 percent as demand for aircraft waned, according to the median projection in the Bloomberg survey. Bookings climbed 0.3 percent the prior month,

The Federal Reserve last week said the U.S. economy expanded at a “slow to moderate” pace in 11 of its 12 districts in October and the first half of November, led by gains in manufacturing and consumer spending. “Hiring was generally subdued” and residential real estate “generally remained sluggish,” the Fed said. “Consumer spending increased modestly, on balance.”

Bloomberg Survey

==============================================================
Release Period Prior Median
Indicator Date Value Forecast
==============================================================
ISM NonManu Index 12/5 Nov. 52.9 53.8
Factory Orders MOM% 12/5 Oct. 0.3% -0.3%
Initial Claims ,000’s 12/8 3-Dec 402 395
Whlsale Inv. MOM% 12/8 Oct. -0.1% 0.3%
Trade Balance $ Blns 12/9 Oct. -43.1 -44.0
U of Mich Conf. Index 12/9 Dec. P 64.1 65.8
==============================================================

source: bloomberg.com

SAP to Buy SuccessFactors for $3.4 Billion

SAP to Buy SuccessFactors for $3.4 Billion

SAP AG (SAP), the largest maker of business-management software, agreed to buy SuccessFactors Inc. for $3.4 billion in cash, stepping up competition with archrival Oracle Corp. in the cloud-computing market.

SAP will pay $40 a share for San Mateo, California-based SuccessFactors, which makes software used to manage employee performance. That’s 52 percent more than the closing price on Dec. 2, the most recent trading day, Walldorf, Germany-based SAP said yesterday in a statement.

The deal extends SAP’s reach in the market for cloud computing, which lets customers rent software delivered over the Web rather than install it on their own machines. The company is promoting the idea as a safe way to outsource data centers and reduce the need for hardware. The SuccessFactors (SFSF) acquisition comes six weeks after Oracle agreed to buy another cloud competitor, RightNow Technologies Inc., for $1.5 billion.

“This is a much-needed move by SAP,” Ray Wang, head of San Francisco-based Constellation Research, a research and advisory firm focused on technology. “What SAP had in human resources -- basic transactional software such as payroll -- was good enough for the old era. In the new era, performance reviews and talent management will be important.”

SuccessFactors has more than 3,500 customers, with more than 15 million subscribers in 168 countries. The company is predicted to have $502 million in revenue in 2013, up from $332 million this year, according to analyst estimates compiled by a Bloomberg.

‘Marvelous Addition’
“We saw Oracle buy RightNow Technologies just a couple of weeks ago at 5.5 times that company’s next year revenue, and SAP is going to pay almost 8 times 2012 revenue,” said Brendan Barnicle, an analyst at Pacific Crest Securities in Portland, Oregon. “But these guys are growing much faster than other people in software on demand, this is a marvelous addition for SAP.”

SAP co-Chief Executive Officer Bill McDermott said on a conference call yesterday that the SuccessFactors deal will help SAP achieve its goal of exceeding 20 billion euros ($27 billion) in sales in 2015. SuccessFactors founder Lars Dalgaard will join SAP’s board and head up the company’s cloud business.

The deal will “slightly” dilute earnings per share in 2012 before adding to profit in subsequent years, the company said. SAP will still be able to reach a 35 percent profit margin by 2015 -- even though companies that sell software that is accessed over the Internet have a lower margin than other software, Chief Financial Officer Werner Brandt said.

Getting Bolder
McDermott said the scale SuccessFactors brings to SAP’s cloud offering will help it maintain the 2015 margin target. The German company expects to complete the transaction in the first quarter of next year.

The SuccessFactors deal shows that SAP co-CEOs McDermott and Jim Hagemann Snabe, who took the helm in February last year, don’t have the same reluctance as the company’s last two CEOs, Leo Apotheker and Henning Kagermann, to expand through acquisitions.

While Oracle Corp. (ORCL) has spent more than $42 billion on takeovers since the beginning of 2005, SAP had only made only two large acquisitions in its 39-year history before SuccessFactors: Sybase, a maker of mobile-device applications, for $5.8 billion in May of last year, and business-intelligence company Business Objects for 4.8 billion euros in 2007.

Software Prices
SAP paid a premium of 56 percent for Sybase and 20 percent for Business Objects, based on a 20-day average share price of the target before the purchase was announced, Bloomberg data show. Over the past five years, the average premium paid for 56 North American software targets valued at more than $500 million was 24 percent, according to the data.

“The price is high,” said Frank Niemann, a consultant at Pierre Audoin Consultants in Munich. “On the other hand, SAP would not be able to build such a solution with such a success in a reasonable period of time.”

The global market for cloud services may surge to $148.8 billion in 2014 from $68.3 billion in 2010, according to research firm Gartner Inc.

SAP shares have gained 17 percent this year in Frankfurt trading, valuing the company at 54.9 billion euros. SuccessFactors has lost 9.4 percent, giving the company a market capitalization of $2.2 billion.

For SuccessFactors, yesterday’s deal was the culmination of a 10-year run for the company and its founder, Dalgaard. A veteran of Unilever NV and Novartis AG, he started SuccessFactors in 2001 and took it public in November 2007.

‘No Jerks’
Sometimes compared to a Danish version of Salesforce.com Inc. CEO Marc Benioff for his outsized personality and salesmanship, Dalgaard also instituted a “no jerks” policy at the company, discouraging behavior that can increase turnover and tie up management.

SuccessFactors is located near a nondescript shopping mall in San Mateo, yet its customer list boasts some of the largest companies, including Hilton Worldwide Inc., Siemens AG and Comcast Corp.

The deal was completed during a weekend board meeting at a conference center near Frankfurt airport, said Saswato Das, a spokesman for SAP.

SAP co-founder Hasso Plattner recommended that Dalgaard join SAP’s executive board, Snabe told analysts during a conference call. Giving SAP broader reach in cloud computing could make its efforts there more profitable, Snabe said.

New Areas
SAP has added three categories since May 2010: mobile- computing software; Hana real-time analytics technology; and Business ByDesign, software that can be accessed over the Internet. The three made up 10 percent of third-quarter sales, Snabe said last month. SAP aims to expand into more product categories to accelerate sales growth, he said.

“We need to make sure we are the leaders in the categories in which we play, and we need to, once every one and a half years or so, add a new category,” Snabe said at the time. “We bet a lot of SAP on one category for many years.”

The purchase of SuccessFactors will be funded from SAP’s existing cash and a 1 billion-euro credit line, the company said. The SuccessFactors board of directors has unanimously approved the transaction.

JPMorgan Chase & Co. is advising SAP, while Morgan Stanley is advising SuccessFactors.

Other big makers of cloud technology include Salesforce.com and International Business Machines Corp. (IBM), along with companies such as Amazon.com Inc. (AMZN) and Dell Inc. (DELL) that operate the servers for cloud services.

“This is a direct message to Oracle and Salesforce that SAP is clearly not going to be left behind in the cloud,” said Donald Feinberg, an analyst at Stamford, Connecticut-based Gartner. “Organic growth is becoming increasingly difficult for companies like SAP, Oracle, IBM and this is definitely a major push in that direction.”

source: bloomberg.com