SAP to Acquire SuccessFactors for $3.4 Billion
Now SAP can say it’s in the cloud for real, and mean it. When we last heard from SAP co-CEO Bill McDermott, he promised that the company would “be a leader in the cloud.” The thing is, it’s not really known as a cloud play, but more for the traditional kind of old-school on-premise software. In an interview in October, McDermott had promised to “let the tiger out of the cage.”
Or maybe buy a tiger. Today SAP said it will pay $3.4 billion to acquire SuccessFactors, a cloud-based maker of human-resources software. The deal values SuccessFactors at $40 per share and works out to a premium of about 53 percent. SuccessFactors shares closed at $26.25 a share on Friday. The shares have fallen by more than 9 percent this year, but traded as high as $40.27 a share during 2011.
SuccessFactors’ software is a cloud-based suite of tools around managing various personnel issues in a business: Performance management, goal setting, managing compensation and even planning for succession among senior managers. Its also has a pretty rich set of customers for so small a company: Among them are chipmaker Advanced Micro Devices, cable giant Comcast and hedge fund BlackRock. The company has about 15 million active subscription seats, and boasts in its earnings reports about one customer in Europe that has 400,000 users and another in the U.S. with 2 million.
The company reported $205 million in revenue in 2010 and a GAAP loss of $12.5 million, but a 7-cent per-share profit on a non-GAAP basis. It was on track to do $330 million or more in sales in 2011.
What’s it mean for SAP? Basically SuccessFactors gets integrated directly into the SAP Business ByDesign portfolio that McDermott talked about. SAP says in its statement that the deal will be paid for with cash on hand, and by a 1 billion euro loan facility.
The question I have now is this: Is this the starting gun for a new round software acquisitions? There are numerous cloud-based enterprise application companies out there. Among those that come to mind are Netsuite, Taleo, and Workday, to name but a few.
The SAP statement is below.
WALLDORF, Germany and SAN MATEO, Calif. , Dec. 3, 2011 /PRNewswire/ — SAP AG and SuccessFactors, Inc. today announced that SAP’s subsidiary, SAP America, Inc., has entered into a definitive merger agreement with SuccessFactors, the market-leading provider of cloud-based human capital management (HCM) solutions, pursuant to which a subsidiary of SAP would offer to acquire all outstanding shares of common stock of SuccessFactors for $40.00 /per share in cash, representing an enterprise value of approximately $3.4 billion . The acquisition will add SuccessFactors’ widely respected team and technology to SAP’s powerful cloud assets, significantly accelerating SAP’s momentum as a provider of cloud applications, platforms and infrastructure. The combination of SAP and SuccessFactors will establish an advanced end-to-end offering of cloud and on-premise solutions for managing all relevant business processes.
The SuccessFactors board of directors has unanimously approved the transaction. The per share purchase price represents a 52% premium both over the December 2nd closing price and the one month volume weighted average price per share. The transaction will be funded from SAP’s cash on hand and a euro 1 billion term loan facility. The closing of the tender offer is conditioned on SuccessFactors stockholders tendering at least a majority of the outstanding shares of SuccessFactors common stock (on a fully diluted basis) and clearances by relevant regulatory authorities. The transaction is expected to close in the first quarter of 2012 and be slightly dilutive to SAP’s Non-IFRS earnings per share in 2012 and accretive in subsequent years.
The acquisition marks another stride in SAP’s strategy of delivering solutions on premise, in the cloud and on mobile devices. It builds on a series of strategic moves in SAP’s targeted growth areas to drive innovation in its core applications and analytics; introduce breakthrough in memory technology; establish leadership in enterprise mobility; and grow its cloud portfolio. SuccessFactors’ solutions are highly complementary to SAP’s core HCM offerings as well as SAP’s strong cloud assets: SAP Business ByDesign for the suite cloud market and SAP’s line of business cloud offerings for large enterprises such as SAP Sales on Demand.
“The cloud is a core of SAP’s future growth, and the combination of SuccessFactors’ leadership team and technology with SAP will create a cloud powerhouse. The acquisition will help us address the top priority for CEOs globally – managing people and talent,” said Bill McDermott , Co-CEO, SAP. “Together, SAP and SuccessFactors will create tremendous business value for customers, with potent synergies to accelerate our growth in the cloud.”
“The depth and experience that SAP brings to customers via our cloud and on-premise portfolio fit elegantly with SuccessFactors’ world-class expertise in providing high-performing, low-cost, native cloud applications that customers are passionate about,” said Jim Hagemann Snabe, Co-CEO, SAP. “Together, we will lead the industry in providing end-to-end solutions consistently to meet any deployment preference, whether on premise, in the cloud or on device.”
SuccessFactors is believed to operate the largest scale of paying cloud users with 15 million subscription seats. With more than 3,500 customers in 168 countries, SuccessFactors is growing rapidly, recording 77 percent revenue growth year-over-year in the third quarter 2011 and 59 percent revenue growth year-over-year in the first nine months of 2011. SuccessFactors’ scalable cloud application platform supports organizations of all sizes from dozens to millions of users. With proven deployments in SAP environments at companies in diverse industries, the combination of SuccessFactors and SAP holds significant growth potential considering the more than 500 million employees of SAP customers and its 15,000 HCM deployments.
With headquarters in San Mateo, California , and more than 1,450 employees, the SuccessFactors team is widely regarded for creating innovative technology, generating more than 80 percent of new sales from applications that did not exist five years ago, and as one of the fastest growing leaders in cloud applications. Upon completion of the transaction, the CEO of SuccessFactors, Lars Dalgaard , will lead the cloud business of SAP in addition to his responsibility as CEO of SuccessFactors. SuccessFactors will remain independent and be named “SuccessFactors, an SAP company”. The chairman of SAP’s supervisory board, Hasso Plattner , recommended that Lars Dalgaard be appointed to the executive board of SAP AG.
SAP and SuccessFactors Customers to Benefit from Combined Application and Technology Footprint
The combination of SuccessFactors and SAP will create a comprehensive HCM solution, marrying strength in enterprise applications with people-focused cloud applications.
SuccessFactors’ complementary solutions will be an attractive option for more than 500 million employees of SAP customers.
SuccessFactors’ applications are designed for businesses of all sizes, and offer easily adopted solutions for customers of SAP Business Suite, SAP Business ByDesign, SAP Business All-in-One, and SAP Business One.
SuccessFactors’ cloud expertise and know how, rapid cloud innovation and proven success running large scale cloud deployments will help SAP customers more rapidly adopt cloud applications.
SuccessFactors’ mobile applications combined with the mobile expertise of SAP and Sybase will offer customers a powerful business-to-employee mobility portfolio.
SuccessFactors’ focus on enabling business insight and execution fits well with SAP’s business analytics platform, promising new levels of real time decision making across the enterprise.