SAP plans to spin off Qualtrics, its $ 8 billion acquisition from 2018, for an initial public offering


Twenty months after SAP went into action and announced its plan to acquire Qualtrics for $ 8 billion, since it was at the height of an IPO, the experience management software company may go public after all.

SAP announced Sunday that it plans to distribute Qualtrics and make it public. SAP would remain majority owner of Qualtrics after the IPO, which it said it plans to carry out in the US.

The transaction is not expected to have an impact on SAP’s 2020 or “longer term” financial goals given its plan to maintain majority control, SAP wrote in its presentation. Qualtrics co-founder and CEO Ryan Smith is expected to be Qualtrics’ largest individual shareholder, according to the document. Neither company disclosed any guidance on the timing of the planned IPO.

In a statement provided to ForbesSmith said: “Since we founded Qualtrics, our goal has been to help companies have a conversation at scale about the experiences their employees and customers have and take advantage of our system to take action. This is an exciting time to be part of Qualtrics. and SAP, and we are excited to continue building the XM ecosystem. “

That “XM” refers to experience management, a category of software that Qualtrics attributes to popularization. Founded by Smith, his father and brother in 2002, Qualtrics emerged as a great success for the Utah tech community, subject to a Forbes profile in 2017, before seeking to go public the following year. Four days before its planned IPO in November, Germany-based SAP plunged $ 8 billion in cash, much of it secured through financing, to buy Qualtrics in a deal that formally closed in January 2019. Forbes values ​​Smith’s personal net worth from that acquisition at $ 1.3 billion.

At a price of approximately 20 times its expected 2018 revenue of approximately $ 400 million, the acquisition was unusually eye-catching for SAP; The CEO behind the deal, Bill McDermott, announced his departure a few months later, insisting he was not related to activist investor Elliot Management taking a 1% stake in the company in the meantime.

More recently, some analysts have seen Qualtrics as one of the bright spots of SAP’s business, which has faced headwinds as companies grapple with the consequences of the spread of the Covid-19 pandemic. In a July 24 report, Cowen J. Derrick Wood analyst noted that a survey of 60 global SAP partners found that about three-quarters had failed to meet their second-quarter sales targets as buyers delayed decisions and they reduced the scope of certain projects. This especially affects business units like Concur, another previous acquisition that makes software for travel and business expenses.

But as companies sell more online and need to remotely track customers and employees, the SAP and Qualtrics e-commerce units have proven to be bright spots, wrote Alex Zukin, an analyst at RBC Capital Markets, in a note to beginning of July. In recent earnings reports, SAP had touted the integration of Qualtrics into other units, such as its human resources software unit, SuccessFactors.

To publicize that bright spot in your books, and indirectly seek to improve, is a bold move for SAP CEO Christian Klein, who took over as sole CEO in April after serving as co-CEO alongside the former executive. Jennifer Morgan in October 2019. In statements provided to ForbesKlein said “Qualtrics exceeded our expectations” in 2019 and stated that the company would remain important to SAP even with the spin-out. “We are and will be fully committed to quality and experience management as a key element of our smart business strategy,” said Klein.

Qualtrics and SAP hope that an IPO can offer each company the best of both worlds: Qualtrics software that strengthens SAP’s business units and finances through strong market performance, with Qualtrics still benefiting from the foundation of SAP customers while you have more independence to attract and compensate talent, make your own acquisitions, and search for customers and partners outside of the SAP ecosystem.

Once an expected IPO is expected, will the public market adopt Qualtrics in a second round? The company reported revenues of 161 million euros, or around $ 188 million, for the first quarter of 2020; When SAP reports earnings on Monday, analysts and potential investors will see the first full quarterly year-over-year results for the business, which said last quarter it had 11,600 customers and was not profitable GAAP. Medallia, another company that tracks customer engagement and experiences with the roots of the online survey, reported revenue of $ 112.7 million in its last quarter, growth of 20% and trading at a market capitalization of $ 4.2 billion. , 30% less than its maximum of July 2019.

A challenge, of course, will be in the execution, not just of a spin-out itself, but how each party will handle the relationship. Addressing those concerns could be the cause of Smith’s second Qualtrics statement issued Sunday: “It is rare for the leadership team of an acquired company to remain intact almost two years after the acquisition,” said the CEO of Qualtrics. “Demonstrates the strength of the SAP / Qualtrics Association.”

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