SAP SE announced its acquisition of Qualtrics International, its largest acquisition to-date which raises questions as to whether the enterprise ERP provider overpaid in an attempt to scoop others.

Weeks before a planned public stock offering, SAP SE has agreed to acquire Qualtrics International, a market analytics sentiment provider  for a reported all cash deal of $8 billion. The move represents SAP’s largest acquisition to-date, topping the previous $7.2 billion acquisition of expense management Cloud provider Concur Technologies.  Digital Networks

This move is being positioned to boost capabilities for SAP’s current and future customer relationship management (CRM) process support applications specifically in the area of integrating customer sentiment feedback into other processes such as product design and development. Qualtrics software collects structured and unstructured data on brand, customers and products by scrubbing email, social-media and various multi-system applications data. Current customers include General Electric, JetBlue Airways, Saks Fifth Avenue, Microsoft and Whole Foods among others.

It further adds yet another Cloud based platform offering to prior acquired platforms.

The bold move obviously takes this start-up off the public offering market, but raises questions as to whether, in the final analysis, SAP overpaid. With Qualtrics current revenues of $300 million the nearly 20 times multiple is obviously quite steep and has to imply much more than a tuck-in acquisition, and more to a broader Cloud platform integration strategy. According to a report by Bloomberg, the start-up had been planning to be listed on Nasdaq with a potential value of $4-5 billion. The company had a $2.5 billion valuation in the spring of 2017.

News of the acquisition caused SAP stock to decline as much as 4.7 percent in early trading on Monday.

In an interview with Forbes, Qualtrics CEO Ryan Smith indicated that there was no real pressure to go public and raise an additional $500 million other than creating the category of customer sentiment analytics.

As The Wall Street Journal noted in its reporting, a sure benefactor of this deal are three venture capital firms that made early investments in the start-up. They were Accel and Sequoia Capital initially and Insight Venture Partners in a subsequent funding round.

The transaction is expected to close in the first-half of 2019 and Qualtrics will reportedly operate as operating entity within SAP’s Cloud business group that includes Ariba, Concur Technologies, Fieldglass and Success Factors.

 

Our Initial Viewpoint

Our initial reaction to the announcement parallels that noted above, namely did SAP overpay? Only time will tell.

Then again, this seems to be part of the latest in rather pricey acquisitions, the most significant being IBM’s recent acquisition of RedHat for a whopping $34 billion, the third largest in information technology history.

For the supply chain technology landscape, the upside could be the ability to integrate wide ranging product sentiment directly into global product management and development, or sales and operations planning (S&OP) decision-making in order to make more agile changes to product sales and profitability management decision-making and deployment based on active market intelligence.

However, we strongly suspect that SAP’s priority will be focused solely in growing its newly announced CX Cloud capabilities announced at this year’s Sapphire customer conference as well as overcoming the huge lead that Salesforce.com currently has in the market.

We do not anticipate any benefits for SAP’s existing Supply Chain Management customer base for many months to-come.

Bob Ferrari

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