SAP Announces Intent to Acquire SuccessFactors- A Shoring-Up of Cloud Based Offerings

Something interesting occurred this weekend, an announcement of an acquisition by SAP.  We note the term interesting because the announcement was made on a Saturday, a relatively non-news day for enterprise software companies in the U.S. as most people are busy with leisure and pre-holiday activity.  We were not even alerted by SAP Global Communications to the announcement.

In any case, the headline reflects SAP’s intent to acquire cloud-based human capital applications provider SuccessFactors for an estimated $3.4 billion. The deal includes an all-cash transaction and was priced at over 60 percent above SuccessFactors trailing 60 day trailing stock price and roughly 9.7 times current earnings.  The San Mateo California based company touts to have a Business Execution System that helps companies manage recruitment, assess human performance and accommodate other human resource process needs.   SuccessFactors boasts over 3500 customers and 15 million subscribers, a software licensing nirvana.  It also includes a rather top-heavy management structure for a mid-sized software services firm in the area of $400 million in revenues.

The deal comes on the heels of SAP’s October announced acquisition of Crossgate, a B2B cloud platform that helps companies to exchange data with their partners. Both announcements are sure raise more debates regarding SAP’s prior statements to follow an organic growth strategy.

It would appear that SAP has caught the HP tendency to significantly overpay in acquisitions, or is acknowledging that it needs to augment its current cloud services offerings.  A New York Times DealBook posting (metered view may be required) quotes a Forester analyst observing that the premium is an indicator of SAP’s struggle with its current cloud platform strategy along with its need to garner more future revenue from the cloud model for computing.   We tend to concur.

In its announcement, SAP indicates that SuccessFactors will remain an independent company, to be renamed SuccessFactors, an SAP Company. Of more interesting note, Lars Dalgard, the current CEO will be appointed to the SAP supervisory board and take on the broader role for providing leadership for SAP’s cloud business offerings.  Readers may recall a similar type of appointment when SAP acquired Business Objects in 2008 and its CEO, John Swartz was tapped to lead SAP’s business intelligence offerings. Swartz later departed SAP over presumed differences in strategy.

Supply Chain Matters wonders aloud whether SAP will be inclined to exercise further cloud related acquisitions in the specific area of supply chain, PLM and manufacturing management applications.

Bob Ferrari

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