SAP's sale of Qualtrics reaches its final stage as it sells shares for $7.7 billion. The deal recoups the initial investment but may signal that SAP is moving out of XM software.
The almost five-year relationship between SAP and Qualtrics has come to an end.
The German enterprise software giant today agreed to sell its 423 million shares of Qualtrics to the private equity firm Silver Lake and the Canadian Pension Plan Investment Board in an acquisition that totaled for $12.5 billion.
SAP's stake in the deal for Qualtrics, an experience management (XM) software vendor based in Provo, Utah, amounts to about $7.7 billion, with the shares selling for $18.15 per share.
"Silver Lake has both the operational expertise and the track record with software companies to help Qualtrics extend its leadership in the XM category it pioneered," said SAP CEO Christian Klein in a press release.
SAP acquired Qualtrics in 2018 for $8 billion and spun it off in an IPO in 2020, where it retained a majority stake. In January, SAP disclosed it was looking to sell off its Qualtrics shares during an earnings call, where it also informed investors of a 2.5% workforce reduction.
Qualtrics has tripled its revenue and delivered profits since SAP acquired it. Companies and brands using Qualtrics' software has risen from 10,000 at the time of the acquisition to more than 18,000 now, Klein stated. SAP intends to remain a go-to-market and technology partner and will continue to service joint customers.
At the time of the initial acquisition, SAP touted that the integration of SAP's operational data, or O-data, and Qualtrics' experiential data, or X-data, would help organizations gain new insights into how customers and employees feel about products and services. This would result in better designed and serviced products more suited to customer needs.
Unfulfilled promise
The combination of SAP and Qualtrics wasn't the most comfortable fit, according to analysts. However they said the deal was far from a disaster for SAP, and Qualtrics may benefit from new private equity ownership.
The entire accounting is somewhat unclear. But the sale price and the IPO mean that SAP at least recouped its initial investment and likely made some profit in the deal, according to Jon Reed, co-founder of Diginomica, an enterprise software analysis firm.
On the product side, SAP promised much with the integration of Qualtrics and SAP data. But the promise was unrealized, Reed said.
There were some interesting integrations, and XM looked good in theory because companies would have a constant feedback loop among people, products and equipment, he said. But the promise of experience management has been somewhat unfulfilled.
"The question of whether or not SAP got anything out of the acquisition from a product perspective is still a little bit unanswered. And they still have a lot to prove there," Reed said.
SAP appears to have done well financially with the deal. But questions remain as to whether it was a worthwhile investment of energy, resources and time, he said.
Qualtrics looks good emerging from the deal, having grown its customer base and size of the deals its closing. Now it can fully pursue partnerships with other enterprise software firms, such as with SAP competitor ServiceNow, Reed said.
Joshua Greenbaum, principal at Enterprise Applications Consulting, described the Qualtrics acquisition as an odd cultural fit from the start, ultimately proving to be a strategic distraction for SAP. However, he added, the IPO and the sell-off were likely financial wins.
"In general the concept of selling the XM side of CXM is a good idea. But squeezing it into the larger strategy of SAP was complicated," he said. "Generally speaking it was good that they did the IPO and made a nice profit. And this looks like a good sale as well."
Private equity ownership not always good for customers
Overall, Greenbaum said, Qualtrics and its shareholders benefited from its relationship with SAP. But the biggest questions are whether the initial acquisition and IPO have been good for Qualtrics customers, he added.
In general the concept of selling the XM side of CXM is a good idea. But squeezing it into the larger strategy of SAP was complicated. Generally speaking it was good that they did the IPO and made a nice profit. And this looks like a good sale as well.
Joshua GreenbaumPrincipal, Enterprise Applications Consulting
The sale to a private equity firm may also be good for Qualtrics shareholders but problematic for customers, he said. Private equity ownership doesn't have to answer to Wall Street for quarterly reporting, which can be good for an enterprise software company. But it also has a reputation for cutting costs and maximizing margins without much regard for the customer, he said.
Selling off Qualtrics likely means that SAP has thrown in the towel in the CX market, said Trevor White, vice president at Nucleus Research.
SAP likely was intent on getting Qualtrics customers to move off Salesforce and into its customer experience ecosystem, he said. This may have been a strategy under former SAP CEO Bill McDermott, but it was never realized before his 2019 departure. Under Klein's leadership the company has refocused its efforts on moving its customer base to the cloud for core systems.
"SAP is pretty well done with the CX space now. They're going to focus on the cloud and getting their customers to make those big moves," White said. "Those take a lot of resources, time and capacity. And trying to add all these bits and bobs was not a realistic long-term plan for them. Given where things are now, their best bet is probably just to focus on their cloud business."
Getting free from the SAP ecosystem will allow Qualtrics to expand its partnerships and product line, he said.
"Given the way the stock market is going now for tech, getting away from having to report quarterly earnings is probably not a bad thing for them either, because it may give them a little more running room," White said. "Silver Lake is a good firm with experience in the tech space. So all of those things combined speaks well for them."
Jim O'Donnell is a senior news writer who covers ERP and other enterprise applications for TechTarget Editorial.
