SAP Snaps Up Qualtrics Prior To IPO In $8 Billion Deal

With enterprises moving to the cloud at an increasing rate, SAP is on the hunt for new applications and offerings and to meet that end it just spent $8 billion to acquire Qualtrics, the survey company that competes against SurveyMonkey. SAP stepped in to acquire the fast-growing startup just as it was readying its initial public offering.

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It marks the second largest acquisition for the German software maker which spent $8.3 billion in 2014 to acquire Concur the travel expense software company. The acquisition comes amid a bevy of software deals this year with IBM announcing earlier in November it was acquiring RedHat for $34 billion. To date that is the industry’s largest deal ever.  Earlier in the year, Microsoft acquired GitHub for $7.4 billion and Salesforce paid $6.4 billion to purchase MuleSoft. It also marks the latest software company to get snapped up prior to an IPO. The same thing happened to Workday, which was acquired by Adaptive Insights ahead of its initial public offering earlier this year.

Qualtrics, which makes money from subscriptions and research on demand that customers can tap for feedback, is expected to end the year with revenue of more than $400 million and projects a forward growth rate of more than 40%, said SAP when announcing the deal. The software company noted that the growth rate does not include any synergies realized from being part of SAP. In the first half of this year, Qualtrics had revenue of $184.2 million, representing 41.7% growth. That compares to rival SurveyMonkey, which is already publicly traded.  It had revenue of $121.2 million in the first half of this year, which is up 14%. SAP said that following the closing of the acquisition, Qualtrics will operate as an entity within SAP’s Cloud Business group with Chief Executive and co-founder Ryan Smith continuing to run the company. According to media reports Smith was on the fence when it came to selling the company, not because of the price tag but because he was giving up control of the company he created.

News of the deal didn’t sit well with all investors, with shares of SAP selling off immediately after the transaction was announced on November 11. After all, SAP hasn’t made a huge deal in four years and had vowed to go after, smaller, bolt-on acquisitions. Some investors are concerned that SAP is overpaying for Qualtrics, criticism the company bristles. SAP finance chief Luka Mucic was quoted as saying during a recent conference that while the deal came together in four weeks it was examined seriously and diligently.  

“Together, SAP and Qualtrics represent a new paradigm, similar to market-making shifts in personal operating systems, smart devices, and social networks,” said SAP Chief Executive Bill McDermott when announcing the deal. “SAP already touches 77 percent of the world’s transactions. When you combine our operational data with Qualtrics’ experience data, we will accelerate the XM category with an end-to-end solution with immediate global scale”