Update: SAP to buy Business Objects for $6.78 billion

SAP has agreed to buy Business Objects for about €4.8 billion ($6.78 billion), a surprise move that breaks with SAP's traditional strategy of avoiding large company acquisitions.

[ More coverage: SAP and Business Objects explain strategy shifts | Video: SAP to buy Business Objects ]

The deal, announced in a hastily called press conference on Sunday evening, is designed to accelerate SAP's growth with the addition of thousands of new customers and a new product line to address the fast-growing market for BI (business intelligence) software.

"The biggest driver was definitely growing new business," SAP CEO Henning Kagermann said of the acquisition.

The deal will also allow SAP to integrate BI capabilities, which allow companies to analyze large amounts of data to improve business performance, more deeply in its own software applications, analysts said.

"The future of business applications, which of course are core to SAP's business, is being able to use them more intelligently, and buying a technology that allows its customers to do that is great for SAP," said David Bradshaw, a principal analyst with Ovum.

SAP has shied away from big acquisitions in the past, preferring to grow its business organically. In contrast, its main rival Oracle has added customers aggressively through more than 30 acquisitions in the past three years, including PeopleSoft and JD Edwards.

SAP has always been critical of Oracle's strategy, saying the company can't manage several different product families effectively. In fact, Oracle's acquisition strategy is paying off for the company in some respects, said Bo Lykkegaard, a research manager with IDC.

"Despite what you might think about this patchwork of different codebases, to a certain degree it has played out very well for them," he said. For example, Oracle has accelerated the sales growth for some of the smaller product lines it has purchased, he said.

In April Oracle said it would pay $3.3 billion to buy Hyperion Solutions, a smaller rival to Business Objects focused on finance management and reporting. Many of Hyperon's customers were also SAP customers, and SAP may have felt it was time to stave off Oracle's encroachment on its turf.

"Hyperion's customer base has been very strongly on SAP, and reporting on SAP data. Those customers are in Oracle's hands now, and that can't be a comfortable situation for SAP," Bradshaw said. He predicted that SAP will work to improve the financial capabilities in Business Objects' software to counter Oracle's acquisition of Hyperion.

SAP will continue to offer Business Objects' software as a standalone product line, and Business Objects will operate independently inside of SAP, Business Objects CEO John Schwarz said.

But the companies will also integrate their software more tightly together in future products. "This business intelligence solution will be available in a more integrated fashion for the SAP customer, and in a stand-alone manner for the non-SAP customer," Schwarz said.