SAP pays $8bn for Qualtrics

Deal supports CEO’s expansion into CRM

FRANKFURT: German business software company SAP SE will buy Qualtrics International Inc for $8 billion in cash, pre-empting a planned stock market listing by the USbased company that specialises in surveying consumers online.

The deal, announced late on Sunday, backs SAP chief executive Bill McDermott’s expansion into customer relationship management (CRM) from the company’s core business of helping firms run their finance, logistics and human resources.

It is SAP’s largest acquisition since it bought travel and expense management firm Concur Technologies Inc for $8.3 billion in 2014.

Qualtrics collects feedback and data on customers, employees, products and brands for 9,000 businesses worldwide, providing real-time insights that are vital in an increasingly digital world.

McDermott said that would give SAP an edge over competitors which still relied on crunching backward-looking figures such as those for customer churn.

“The legacy players who carried their ’90s technology into the 21st century just got clobbered,” he told reporters on a conference call.

McDermott said that once the deal closes SAP would achieve the fastest revenue growth of any company in the enterprise application software industry, where SAP’s competitors include Salesforce.com Inc and Oracle Corp.

“Top-line revenues would grow by double digits, while non-IFRS operating income would outpace revenues,’’ he said.

The company will update its guidance after the deal closes, which is expected in the first half of 2019.

“Qualtrics completes SAP’s software portfolio and increases its share in cloudbased subscription software,’’ McDermott added in an interview with Reuters.

For Qualtrics, the deal marks a dramatic outcome just days before the 16-year-old company was due to launch a smaller initial public offering.

Qualtrics CEO Ryan Smith, who owns about 40% of the company with his brother and father, told Reuters that the IPO would have valued the company at least at $6 billion.

“We were going to be one day worth $20 billion or $30 billion, like a ServiceNow Inc or a Workday Inc,” he said. “We were under no financial pressure to do anything.

Smith will stay on in the job and the company will retain its dual headquarters in Provo, Utah, and in Seattle.

SAP sees an opportunity in combining its ‘operational’ data — the company says 77% of the world’s transaction revenue touches one of its systems — with the ‘experience’ data the Qualtrics XM Platform gathers.

The two executives met a few months back and quickly struck up a friendship — McDermott said he showed up for lunch at Smith’s home in a suit and dress shoes, and the two ended up playing basketball in the yard.

“We hit it off right off the bat,” said McDermott, a 57-year-old New Yorker who has headed SAP since 2010.

The SAP boss said previously he was only looking at “tuck-in” acquisitions. He described the Qualtrics deal as transformational in terms of growth potential, comparing it with Facebook Inc’s takeover of photo-sharing site Instagram.

Qualtrics expects revenues to exceed $400 million this year, and projects a forward growth rate of greater than 40%, not including potential synergies that might arise from being part of SAP.

Smith said the business had been consistently cash-flow positive since it was founded in his parents’ basement.

By contrast, SAP expects total revenues to grow this year by 7.5-8.5% to more than €25 billion ($28 billion) — although its new cloud-based products are achieving comparable growth rates with those of Qualtrics.

SAP recently launched a new cloudbased sales and marketing suite, called C/4HANA, to supplement its mainstay S/4HANA range that has been sold to 9,500 businesses.

SAP will acquire all of the outstanding shares in Qualtrics and has secured €7 billion ($7.9 billion) in financing to cover the purchase price and acquisition-related costs for the deal, which has been approved by both companies’ boards.