SAP preempts listing by Qualtrics with purchase

GERMAN business software company SAP has agreed to buy Qualtrics International for US$8 billion in cash, preempting a planned stock market listing by the US-based company which specializes in tracking online sentiment.

The deal will help Europe’s most valuable tech firm strengthen its customer relationship management software offering.

This is a focus of Chief Executive Bill McDermott who is competing with CRM specialist Salesforce and arch-rival Oracle.

The deal is SAP’s largest acquisition since it bought travel and expense-management firm Concur for US$8.3 billion in 2014.

Qualtrics captures and analyses data on brands and products from real-time sources including social media and email. It should give SAP’s clients better insights into their own customers’ experience.

SAP’s core strength lies in helping some of the world’s biggest firms run their finance, logistics and human resources operations.

“Experience data plus operational data are a powerful combination,” McDermott said.

But shares in SAP fell 4.2 percent as traders and analysts believed SAP was overpaying.

“It might be a valid strategic rationale and top-line growth is impressive, but it’s still expensive,” said one trader.

McDermott said that once the deal closed SAP would achieve the fastest revenue growth of any company in the enterprise application software industry.

Baader Helvea analyst Knut Woller said that at 21.5 times trailing annual revenue, the price SAP was paying is nearly double the multiples in comparable recent deals of 11.2 times.

Woller has a “buy” recommendation on SAP shares.

Qualtrics expects revenue to exceed US$400 million this year, and projects a growth rate above 40 percent, not including potential synergies that might arise from being part of SAP. It has 9,000 customers, mostly in the United States.

SAP expects its own revenue to grow this year by 7.5 to 8.5 percent to more than 25 billion euros.

Bernstein analyst Mark Moerdler, who rates SAP “outperform”, said the acquisition would fill a void in SAP’s portfolio.

“While SAP has paid premium prices for their acquisitions they have acquired quality assets and have been overall successful acquirers,” he said.