On Nov. 11, SAP announced it had entered into a definitive agreement to acquire survey and research company Qualtrics for $8 billion in cash. The deal, which is scheduled to close in the first half of 2019, was a bit of a surprise to the tech and financial world, as Qualtrics was set for an IPO just before the announcement of the sale.
While the deal is subject to regulatory approval, the SAP and Qualtrics boards of directors, as well as Qualtrics’ shareholders, have already approved the transaction. Qualtrics CEO Ryan Smith will remain in his leadership position and the company is expected to maintain its personnel, locations and branding.
Qualtrics, founded in Utah in 2002 by Smith along with his father, is a fast-growing company in the business of experience management (XM). Ten years after founding the company, Smith reportedly turned down a $500 million acquisition offer and by 2017 the company was valued at $2.5 billion. At the time of the SAP announcement, Qualtrics was on a roadshow with potential investors, and according to Business Insider would have been valued at around $5 billion.
What was so interesting about this company that SAP would swoop in with a $3 billion premium? What started as a company offering online market research survey software has transformed into big data analysis — “big data” being two words that should immediately offer insight into SAP’s interest. SAP, the world’s largest supplier of ERP software (powering, among other things, the Konica Minolta/MWA FORZA product), is looking for complementary products in the ever-growing cloud software market, and SAP CEO Bill McDermott explained the synergies in a press announcement.
“Together, SAP and Qualtrics represent a new paradigm, similar to market-making shifts in personal operating systems, smart devices and social networks. 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.
“The combination of Qualtrics and SAP reaffirms experience management as the groundbreaking new frontier for the technology industry,” McDermott continued. “SAP and Qualtrics are seizing this opportunity as like-minded innovators, united in mission, strategy and culture. We share the belief that every human voice holds value, every experience matters and that the best-run businesses can make the world run better.”
What is Experience Management?
SAP is pumped about experience management, even touting it in the headline of its press release as “the future of business” — and it must be, because it’s worth $8 billion to one of the world’s top tech companies. But what exactly is it?
According to Qualtrics, “Experience Management is the process of monitoring every interaction people experience with a company in order to spot opportunities for improvement.” It digs down further by talking about “connecting the Xs and Os” — experience data (understanding why things happen — the thoughts and emotions of the people involved) and operational data (hard numbers like costs, accounting and sales). In the Venn diagram between the X and the O is where SAP sees those perfect synergies colliding. A nifty fact sheet on the acquisition shows how the Os provided by SAP’s ERPs, CRMs and other systems overlap with the Xs that come from Qualtrics’ customer engagement data. Does it create the perfect solution? Well, they’re certainly going to try.
An ahead-of-its-time 1998 Harvard Business Review article titled “Welcome to the Experience Economy” noted that “experiences are a distinct economic offering, as different from services as services are from goods. … From now on, leading-edge companies — whether they sell to consumers or businesses — will find that the next competitive battleground lies in staging experiences.”
It should surprise exactly no one, then, that SAP is jumping in on the next stage of this battleground and making the Xs and the Os come together in a way that makes not only technical but financial sense. SAP has more than 413,000 customers worldwide, a salesforce of 15,000 in 190 countries, and 77 percent of the world’s operational data. Qualtrics’ 1,972 employees and 450-person sales team are tiny by comparison, but its more than 9,000 customers include 75 percent of all Fortune 100 companies. The potential, at that point, becomes almost unlimited, and explains McDermott’s enthusiasm for the transaction — he’s referred to it, among other things, as “the jewel in the crown for SAP” and “the No. 1 most transformative thing I’ve ever been involved in.”
Qualtrics’ pre-acquisition projections for 2018 revenue were more than $400 million with a forward growth rate of 40 percent — and those are pre-SAP numbers. By leveraging the global powerhouse that is SAP, the potential for scale is almost unlimited.
Following on the heels of IBM’s acquisition of Red Hat, the SAP and Qualtrics transaction marks a busy year-end in the tech space. Technology continues to evolve rapidly and there is no end in sight to the M&A activity in the space, but as long as it creates exciting opportunities like this one, we’ll continue to watch it in anticipation.
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