Commentary

SAP Is Taking Qualtrics Public After A Short Experience Managing It

SAP announced yesterday that Qualtrics, the experience management software company it acquired 18 months ago, will be going public.

The Walldorf, Germany-based SAP bought Provo, Utah-based Qualtrics for about $8 billion after making its offer just days before its planned IPO in 2018. Qualtrics gathers real-time feedback from customers to help analyze how a company’s products or services are performing.

“SAP's acquisition of Qualtrics has been a great success and has outperformed our expectations with 2019 cloud growth in excess of 40%, demonstrating very strong performance in the current setup. We decided that an IPO would provide the greatest opportunity for Qualtrics to grow,” SAP CEO Christian Klein stated  in the release announcing the news.

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“SAP said it will continue to hold majority ownership of Qualtrics, and Qualtrics founder Ryan Smith will remain its largest shareholder. SAP said the timing and final decision for the IPO is still pending, and subject to market conditions,” writes  Reuters’ Douglas Busvine.

“Qualtrics founder … Smith painted an equally rosy picture of today's unexpected announcement: ‘This is an amazing time to be part of both Qualtrics and SAP,’ Smith said in the press release. ‘We’re excited to continue building out the XM [experience management] ecosystem while SAP remains our closest and most important innovation partner,’” Michal Lev-Ram writes  for Fortune.

“SAP will retain majority ownership of a newly independent and public Qualtrics. (According to the release, SAP has ‘no intention of spinning off or otherwise divesting its majority ownership interest.’) Both leaders contend that the two companies will continue to work together as partners. With all of that said, taking Qualtrics public after less than two years of ownership -- and, notably, after spending $8 billion on the acquisition -- raises some questions,” Lev-Ram continues.

“Founded by Smith, his father and brother in 2002, Qualtrics emerged as a breakout success for Utah’s tech community, subject to a Forbes profile in 2017, before looking to go public the following year,” Alex Konrad writes  for Forbes.

Recently, “as businesses sell more online and need to track customers and employees remotely, SAP’s e-commerce units and Qualtrics have proven bright spots, RBC Capital Markets analyst Alex Zukin wrote in a note earlier in July. In recent earnings reports, SAP had touted Qualtrics’ integration into other units such as its human resources software unit, SuccessFactors,” Konrad continues. “To spin out that bright spot in its book -- and look to ride its upside indirectly -- is a bold early move for …Klein,” he adds.

“SAP had hoped that Qualtrics, which was bought while Mr. Klein’s predecessor Bill McDermott was still at the helm, would help drive adoption of its core resource-management suite S4/Hana, by offering insights on employees and customers to its corporate clients,” Joe Miller writes  for Financial Times.

“‘There are millions of complaints every day about disappointing customer experiences,’ Mr. McDermott said in 2018, as he laid out the rationale for the purchase. ‘This is called the experience gap.’

“Most recently, SAP deployed Qualtrics to gather feedback from its customers’ employees about returning to workplaces in the wake of COVID-19,” Miller adds.

“‘When you pay a premium, and you buy it for $8 billion, you want to create some synergies and create a differentiator and do some cross-selling,’ Oddo BHF analyst Nicolas David tells  Bloomberg’s Sarah Syed in an interview published on Yahoo Finance. ‘If there’s no integration, you’re buying two software products from the same supplier, and there is no value in buying those two together.’

“Klein must compete with younger companies, such as Salesforce.com and Workday Inc., while managing a shrinking legacy software business,” Syed points out, noting that SAP shares rose 3.5% this morning and that the stock has gained 17% this year.

“‘We believe that many SAP investors do not fully understand Qualtrics or its vision for the future and this would probably help at least as it relates to better understanding its value,’ Mark Moerdler and Firoz Valliji of Bernstein Research, who have the equivalent of a buy rating on SAP stock, wrote in a note distributed to clients on Sunday,” Jordan Novet writes  for CNBC.

Ya think? Maybe we should do a survey about that …

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