What's going on?
German SAP, Europe’s biggest software company, announced late on Sunday that it was buying US survey software maker Qualtrics for $8 billion in cash – but “unsatisfied” investors sent its shares down 6% on Monday.
What does this mean?
SAP thinks Qualtrics will beef up its cloud customer relations business – an area that’s growing faster than SAP’s traditional desktop-bound software services. Qualtrics competes with SurveyMonkey, collecting data that helps give businesses insights into how their customers feel and behave. Sunday’s deal follows SAP’s purchase of CallidusCloud, another cloud-based customer relations management company, earlier this year. The thinking is that these buys will allow SAP to better compete with the big guy in the space, US giant Salesforce.com.
Why should I care?
For markets: An expensive deal.
Investors seemed to like the deal in principle; not so much in price. Qualtrics cost more than 20 times its predicted sales this year (a typical valuation would be something like 10 times sales). That’s partly because the company had been considering “going public” at the same time as entertaining suitors to purchase it outright (known as a “dual-track” strategy). With Qualtrics likely to be worth $5 billion if listed on the stock market, SAP had to pay up to win it over. The deal is SAP’s second-biggest acquisition ever, and there’s always the risk that the marriage won’t be a happy one – so it’s perhaps no surprise that investors sold off the stock. If things do go well, though, SAP stands to become a global (sales)force to be reckoned with.
The bigger picture: Old tech needs new tech.
It’s not just SAP with its head in the clouds: other big software companies are also making moves to stay in the game and keep ahead of fast-growing startups, snapping up cloud-based companies left, right, and center. IBM just bought Red Hat for $34 billion, for example, while Microsoft bought GitHub for $7.5 billion earlier this year.