Selling a company just two years after buying it is rarely a good look. Yet in the case of German software giant SAP, floating Qualtrics — the US survey software maker it acquired for a heady $8bn — is a smart move. Optics matter less when a bull run in technology stocks is bloating sector valuations.
SAP plans to sell an undetermined number of Qualtrics shares for $20 to $24 each. At the top end that would value the company at about $14.4bn on a fully diluted basis.
SAP will remain the majority shareholder after the sale. But a spin-off would nonetheless offer a salve to investors who fretted at the costly M&A adventure. Questions were raised about the rationale from the get-go. Like a geography teacher at the school disco, elbow patched and arms flailing out of time to the music, SAP is a legacy enterprise software company that desperately wanted to be down with the kids. Fast growing Qualtrics — which makes software to survey customer and employee feedback and competes with the likes of SurveyMonkey — seemingly offered a way in. It was supposed to be at the heart of SAP’s push into cloud services.
SAP’s problem is its inability to integrate its purchases. There proved to be fewer opportunities for cross-selling than anticipated and Qualtrics is a minnow in the bigger group. Revenue, while up 22 per cent year-on-year in the most recent quarter, was still just €169m, or 2.5 per cent of group total.
A spin-off will allow SAP to raise some cash while — claims SAP — giving Qualtrics room to pursue fresh markets. Having its own shares will also provide Qualtrics with currency for targeted acquisitions.
At the top end of its price range, Qualtrics will be valued at around 24 times 2019 revenues. SVMK, better known as SurveyMonkey, trades at around 12 times trailing revenues. But its growth trails that of Qualtrics. Like SAP two years ago, potential investors need to be prepared to stump up.
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