Germany's SAP to Buy Qualtrics for $8 Billion in Cash - EcoFinBiz Blog

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Germany's SAP to Buy Qualtrics for $8 Billion in Cash

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(Bloomberg) -- SAP SE is making its largest acquisition yet as it battles startups including Salesforce.com Inc. in selling software to clients that want to better understand their customers.

The $8 billion purchase of Qualtrics International Inc., whose software gathers and analyzes data, is meant to strengthen SAP’s offering in the customer relations management sector. That’s a field SAP wants to gain a stronger foothold in because it’s growing faster than its core enterprise software business.

Based in Utah, Qualtrics collects data on customers, brand, employees and products -- such as emails, social media posts and in-app data -- to give companies insights into how their customers behave or feel about them. It’s an emerging sector called "experience management."

Most analysts agree the deal makes strategic sense as an increasing number of companies digitize and produce massive amounts of data. Yet it’s an expensive plan to buy growth, said Neil Campling, an analyst at Mirabaud. The offer price, about 20 times Qualtrics’s sales this year, is an “extremely high multiple which ever way you look at it,” he said in emailed comments.

SAP fell as much as 2.5 percent in early Frankfurt trading on Monday.

SAP, led by Chief Executive Officer Bill McDermott, pre-empted the U.S. enterprise software company’s plans to go public. The German company has secured financing of 7 billion euros ($7.9 billion) to cover the purchase price and acquisition-related costs, the company said late on Sunday. This is SAP’s largest deal to date, according to data compiled by Bloomberg, topping its 2014 acquisition of Concur Technologies Inc. for $7.2 billion.

“Tuck-ins are tuck-ins but transformative deals are transformative deals,” McDermott said on a conference call. “You’d have to do a whole lot of tuck-ins and spend a whole lot of years tucking-things-in to do what we did here.”

Qualtrics sees 2018 revenue exceeding $400 million and forecasts a forward growth rate of greater than 40 percent. The company earlier filed for an IPO of $200 million. It was valued at $2.5 billion in a 2017 private funding round and its customers include Microsoft Corp., JetBlue Airways Corp. and General Electric Co.

“SAP is launching a greater push into CRM, which is growing at 20 percent and is becoming one of the biggest markets in the software space,” said Holger Schmidt, an analyst at Bankhaus Metzler. “It’s about collecting more data -- about products, customers and supply chains.”

SAP anticipates that the transaction will close in the first half of 2019, and Qualtrics will operate as an entity within SAP’s cloud business group. Ryan Smith, Qualtrics’s CEO, will continue to lead the company, which will maintain dual headquarters in Provo, Utah, and Seattle.

“We want to be working with SAP and that’s what we’re most excited about,” Smith said on the call.

Qualtrics was advised on the transaction by Qatalyst Partners and Goodwin Procter, LLP. JPMorgan Chase & Co. acted as a financial adviser and Jones Day acted as legal adviser to SAP.

--With assistance from Alex Barinka.

To contact the reporters on this story: Stefan Nicola in Berlin at snicola2@bloomberg.net;Joyce Koh in Singapore at jkoh38@bloomberg.net

To contact the editors responsible for this story: Giles Turner at gturner35@bloomberg.net, ;Ben Scent at bscent@bloomberg.net, Chad Thomas

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