Our featured development for Supply Chain Matters This Week in Supply Chain Tech highlight is an announcement from Global Enterprise ERP and Cloud systems technology provider SAP SE this week indicating that the company would offer Cloud-based Experience Management software provider Qualtrics International as a publicly traded company.


Supply Chain Matters This Week in Supply Chain Technology

Qualtrics software collects structured and unstructured data on brand, customers and products by scrubbing email, social-media and various multi-system applications data. In November of 2018, weeks before a planned public stock offering, SAP swooped in and agreed to acquire Qualtrics, a market analytics sentiment provider,  for a reported all cash deal of $8 billion. The move was the ERP provider’s largest acquisition to-date, topping the previous $7.2 billion acquisition of expense management Cloud systems provider Concur Technologies.

At the time, business media described the action as a bold move to take a perceived hot  start-up company off the public offering market. SAP investors however, had a sour response to the overall sum. At the time, Qualtrics revenues were noted as $300 million and the software provider was not profitable. The move was orchestrated when SAP had a co-CEO structure that included Bill McDermott and Jennifer Morgan leading the company’s strategic direction. McDermott hyped the acquisition as ground-breaking and placing the company in the forefront of what customer experience management will ultimately become.

The co-CEO arrangement was subsequently dissolved in April of this year with the resignation of Morgan, and later with McDermott’s departure to lead another software provider.

Our view of the acquisition was that paying the nearly 20 times multiple was obviously quite steep and had to imply much more than a tuck-in acquisition, and more to a broader Cloud platform integration strategy. According to a report by Bloomberg at the time, 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.

In July of this year, SAP again surprised equity markets with an announcement of a Qualtrics IPO at an undetermined future date. The announcement included a statement from now sole CEO Christian 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

SAP indicated that it would remain a majority holder of Qualtrics when the IPO was consummated. Klein made the IPO announcement at the time of SAP’s reported Q2 financial and half-year performance which communicated to equity markets that because of the ongoing pandemic, the ERP provider would be challenged to accomplish longer-term revenue and profitability goals. In October, SAP was forced to cut back once again on its financial outlook, again citing the pandemic’s impact on technology initiatives.


This Week’s Announcement

According to reporting by Bloomberg, the formal IPO announcement made this week implies what could be one of the first U.S. initial public offerings of 2021 with plans to sell an undetermined number of shares for $20 to $24 per share. At the top end of that range, the IPO would value Qualtrics at about $14.4 billion on a fully diluted basis The company’s filing indicates that Qualtrics’s co-founder and former Chief Executive Officer Ryan Smith agreed on December 8 to purchase 6 million shares for $20 per share

In its regulatory filing, Qualtrics disclosed $550 million in total revenues through the period ending in September, compared to $418 million in the year-earlier period, a 32 percent increase. Profitability in the nine-month period was noted as a $258 million net loss, compared to a $860 million loss in the same year-earlier period.

The filing further reportedly indicates that Silver Lake, one of the original investors in the start-up, agreed to buy $550 million of shares of Class A common stock in a private placement, including $225 million in stock at the IPO price and the rest at $21.64 per share.


Additional Thoughts

The formal announcement of the Qualtrics public offering has obviously been timed to take advantage of a perceived hot IPO market with rather attractive if not super optimistic tech company evaluations.

For Qualtrics, a pegged value of between $4 to $5 billion in 2018, now billed at over $14 billion in valuation is a tall order with a profitability track record yet to occur.

The original notions of SAP’s $8 billion investment was the broad integration of the company’s experience management capabilities with other SAP applications, particularly in customer relations management as well as sales and marketing processes. There were some further potential possibilities in supply chain management applications.

As an independent company, Qualtrics will need to appeal to non-SAP customers while at the same time meeting the original functionality expectations of SAP, who for the interim, will remain a majority owner. Technology strategy and architecture will have to be able to satisfy various industry and market needs.

Obviously, this development provides financial benefits for SAP as well as Qualtrics’s original founders and investors, who now reap the rewards of both acquisition and having the originally planned  IPO event.

So is the sometimes-whacky world of enterprise technology. Beauty is in the eye of the beholder.

Bob Ferrari

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