In our prior published blog we provided Supply Chain Matters readers with highlights of SAP’s recent Q2 and half-year financial performance.

However, the SAP news that will more than likely garner the most editorial discussion was a separate announcement over this weekend indicating intent to take the Qualtrics experience management technology business unit public through an initial public offering (IPO) to be listed in the United States.

Readers will hopefully recall that SAP announced the acquisition of the innovative experience management software provider in November 2018 for an $8 billion price tag, which raised questions by many tech industry observers as whether the enterprise ERP provider overpaid in an attempt to scoop others.

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At the time, Qualtrics management had active plans for an IPO offering reported to be in the $500 million range when SAP swooped in with its $8 billion offer. At that time, then SAP CEO Jim McDermott, hyped SAP’s largest acquisition ever as ground-breaking and placing the company in the forefront of what customer experience management will become.

This week’s IPO announcement indicates that SAP’s primary objective is to further fortify Qualtrics autonomy and: “expand its footprint both within SAP’s customer base and beyond.” Reportedly, Qualtrics fonder Ryan Smith and his management team will continue to operate the company post-IPO.

The announcement includes as a statement from SAP CEO Christian Klein:

As Ryan Smith, Zig Serafin and I worked together, we decided that an IPO would provide the greatest opportunity for Qualtrics to grow the Experience Management category, serve its customers, explore its own acquisition strategy and continue building the best talent. SAP will remain Qualtrics’ largest and most important go-to-market and research and development (R&D) partner while giving Qualtrics greater independence to broaden its base by partnering and building out the entire experience management ecosystem.

According to the announcement, a final decision on the IPO, its conditions and timing is pending and subject to market conditions.

The SAP announcement includes a further statement from now sole CEO Klein:SAP’s acquisition of Qualtrics has been a great success and has outperformed our expectations with 2019 cloud growth in excess of 40 percent, demonstrating very strong performance in the current setup” When we commented on Klien’s appointment as sole CEO, we had indicated signs of other changes to come, and here is one of them.

As noted in our prior blog in this two-part series, while Qualtrics, Q2 segment revenues were reported as €168 million, up 34 percent year-over-year. Qualtrics segment profit was €7 million in Q2, with segment profit noted as 4.3 percent. On a half-year basis, segment revenue was €321 million in constant currency with segment profit of €247 million vs. €172 million in the year-earlier period, an increase of 43 percent.

In today’s IPO climate with highly uncertain business and financial markets, while Qualtrics sales are increasing, profitability and margin performance are not necessarily stellar compared to what may be considered hot in a pandemic business environment. Take a gander at Zoom’s valuation levels. With an annual revenue run rate of likely upwards of €700 to €750 million, the timing of the IPO seems indeed a challenge as is what the company’s valuation might turn out to be.

From our lens, the move questions what SAP’s real motivation may be, perhaps facing the possibility of having to write-off some of its prior investment without an IPO boost. Further questions center on how SAP customers would have to acquire experience management software and analytics from two separate companies or how likely are non- SAP customers willing to acquire technology from a software company whose major stockholder and product development influencer is SAP.

As with all things currently related to SAP, time will be the sole determinant of the success of this latest spinout strategy.

The likely real winner is Qualtrics founder Ryan Smith who now may get the opportunity to reap the financial rewards of two funding rounds of his company.

 

Bob Ferrari

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