SAP has agreed to buy San Mateo's SuccessFactors Inc. for $3.4
billion in cash in a bid to catch up with rival Oracle in the
cloud-computing market.
The move is the latest acquisition by co-CEOs Bill McDermott and Jim
Hagemann Snabe, who took charge of SAP when CEO Léo Apotheker was forced
out in 2009.
McDermott and Snabe have pledged to make the largest maker of
business-management software better at meeting demand for new
technologies, such as cloud computing, real-time analytics and mobile
applications.
The SuccessFactors deal shows SAP's previous go-it-alone approach to
the cloud was lacking, said Thomas Otter, a vice president at Gartner
Inc.
"My first reaction was: What took you so long?" Otter said. "This
means a fundamental shift in terms of their cloud strategy, which has
been rather slow to get off the ground. This is a tacit admission that
their cloud strategy was a failure."
Stock takes a hit
SAP shares dropped 1.6 percent to 44 euros in Frankfurt Monday, valuing the company at 54 billion euros.
"In addition to the high price paid, which we think investors will
see negatively, the other question will be whether the decision to
acquire reflects a sign of SAP's strength or its weakness," UBS analyst
Michael Briest said Monday. He cut his rating on SAP shares to "neutral"
from "buy."
SAP, Oracle and companies such as Apple, Salesforce.com, IBM,
Amazon.com, Dell and Microsoft are promoting cloud computing as a secure
way to outsource data centers and reduce the need for pricey servers
and other hardware.
SuccessFactors, which makes software used to manage employee
performance, has more than 3,500 customers and 15 million subscribers in
168 countries. The company is predicted to have $502 million in revenue
in 2013, according to analyst estimates compiled by Bloomberg.
SAP is paying 8 times SuccessFactors' forecast revenue for next year,
compared with a median of 3 times revenue companies paid for 32 North
American software targets over the past five years, Bloomberg data show.
'Crown jewel'
"You get what you pay for, and if you want the crown jewel in this
industry, you have got to pay for it," McDermott said. "We are very
comfortable with the relationship between the price and 2012 revenues.
It's very much in the medium range. We don't consolidate old, tired
companies that don't grow anymore."
SAP may take a break from large deals after the close of
SuccessFactors, while it concentrates on expanding in cloud computing,
mobile business software, data analysis and in-memory computing,
McDermott added.
"For now, I think we have the assets we need to win," he said.
McDermott and SuccessFactors CEO Lars Dalgaard first met on Sept. 27
at SuccessFactors' office in San Mateo. One asset SAP gains is Dalgaard
himself.
Dalgaard, 44, will have the job of overseeing SAP's broad
software-as-a-service efforts, including its Business ByDesign Web
programs for midsize companies. Peter Lorenz, an SAP executive vice
president in charge of the group of products, will report to him,
McDermott said.
"Lars will oversee the entire SAP cloud," McDermott said. "This is our catalyst."
Owning SuccessFactors, which helps companies decide which employees
to retain and how much to pay them, can help SAP sell "human capital
management" software to the highest echelons of its customers'
management, McDermott said.
SuccessFactors may also add programs for handling logistics and supply-chain operations, Dalgaard said.
"The talent management market will probably be worth about $3.5
billion this year," Otter said. "SAP has essentially spent what the
whole market will be worth this year in one swoop. It is a lot to pay
for a niche in their portfolio, but human resources technology is a hot
space."
The global market for cloud services may surge to $148.8 billion in 2014 from $68.3 billion in 2010, Gartner estimates.