7 ms·

SAP to acquire Qualtrics

94 points by peterkshultz 8y ago

devmunchies 8y ago
This is very surprising. They were prepping to go public for a couple years, even stacking their c-suite with ex-microsoft executives. (I left Qualtrics a year ago.)
- malshe 8y ago
  I am baffled by the valuation. I use Qualtrics often for data collection but I never knew it was valued at multiple billions. What's their main revenue source? I don't believe that B Schools pay them so much to warrant this kind of valuation.
  - cyrux004 8y ago
    Enterprises. Although at Qualtrics, University usage is often cherished since that's where they started to get popular
  - twtw 8y ago
    2017 profit of $2.6M.
  - hyperpallium 8y ago
    Acquisitions are sometimes strategic, i.e. it's not what they are doing, but what they will do. It's now accepted that you can lose to startups, and (like bugs), it's cheaper the earlier you nip the acorn in the bud (to clash metaphors). It can indicate the acquirer's own opinion of their competitive vulnerabilities.
  - CapnCrunchie 8y ago
    They sell to enterprises. They have customers like BMW, Southwest, etc. They get MBAs to learn to use them in school, then when they have to use a product when they get a job at a fortune 500, they go with Qualtrics since they know how to use it. That's how they got a lot of market penetration.
- paxys 8y ago
  They were planning to go public in weeks, not years. Looks like the founders/board opted for a guaranteed payday (2-3x share price premium) over stock market uncertainty, but it still seems like an odd decision.
  - adventured 8y ago
    $7 billion cash-out for the family that controls Qualtrics, perhaps an irresistible opportunity. It's 30x $266m in profit. They might need to get to $3b or $4b in sales to reach that kind of annual profit generation, if they spend like most SaaS companies do to pursue growth. They might have seen blips over the next five or six years where their valuation ran higher than $8b without the fundamentals to support it (assuming everything went according to plan in the business), however, averaged over time I find it hard to believe they could support an $8b market cap without a dramatic size increase. This party market won't last forever. Excellent sale by the owners (all cash at that, avoiding the downside risk in SAP's stock at 32x earnings; in any other market SAP gets a 20 PE or lower). I also suspect that as a public company, assuming the time it takes to scale to justify an $8b-$10b style market cap (five or six years at least, likely more), and the dilution they'd suffer as a family when it comes to employee stock compensation over time, they might need something more like a $12b+ stable future outcome to match where they're already at with SAP. Introduce business risk, economic risk, stock market risk, and a lot of years to get from here to there - the $7b would seem to make great sense for the Smith family. The best reason to not take this deal, is to keep control of the company - as it is, the Smiths get to keep running it anyway post acquisition and don't have to deal with public shareholders et al.
- erikb 8y ago
  Today is the first day I hear about this company. What are they doing? Do they have noteworthy customers?
userbinator 8y ago
Apparently "experience management" is now the euphemism of choice for user-tracking... I have their domains blocked in my HOSTS file, and they're one of the ones known for tracking mouse movements and clicks on pages. I hope I do not have to block SAP too...
- Rjevski 8y ago
  > I do not have to block SAP too... Just FYI, nothing of value will be lost if you do.
dmode 8y ago
Having worked previously at another SAP acquisition, this is pretty much the beginning of end for Qualtrics
- whimsical_toad 8y ago
  Care to share more details than that?
- AndyNemmity 8y ago
  Depends on the acquisition, several have went well.
  - gaius 8y ago
    Do you have any examples?
    - mzkply 8y ago
      Concur & Hybris come to mind
      - ntsplnkv2 8y ago
        Ariba as well - although they haven't touched it much due to it being a cash cow.
    - majewsky 8y ago
      Acquisitions like Concur/Hybris/Successfactors are a big part of why SAP is currently doing quite well, and the board acknowledges as much. Disclosure: I work at SAP and hold a few shares.
      - swarnie_ 8y ago
        Slightly off topic, what's the culture like at SAP? We've recently picked up a few top level SAP bods to run our smaller business, the changes have been both rapid and dramatic.
twtw 8y ago
> acquire all outstanding shares of Qualtrics for US$8 billion in cash 2017 profit of $2.6M on revenue of $290M. Please ELI5, how does someone decide on a price 26x higher than earnings? EDIT: 3077x earnings - thanks 'adventured.
- adventured 8y ago
  > how does someone decide on a price 26x higher than earnings? That's 3,077x earnings. $2.6m vs $8b. 26x would be a great price in this market. For the same reason Facebook paid a billion dollars for Instagram, with zero revenue (or Google & YouTube). Aggressive speculation on the future outcome (growth) of what they're buying. They're plausibly betting Qualtrics might be a $3b sales division some day, yielding $500m in profit, or similar. They're willing to pay up now for those hopeful future profits, to take them off the market before a competitor does or Qualtrics gets far larger and more expensive in the future. Definitely a very rich premium they're paying (from SAP's side, it's equivalent to two years of their after-tax profit).
  - twtw 8y ago
    > That's 3,077x earnings Whoops. Thanks, updated. Coming from experience with semiconductor companies years back, 3-4x earnings was a typical acquisition price. This speculation on growth is very interesting to me.
    - nylonstrung 8y ago
      Recurring SaaS revenue with good retention is highly predictable with 80-90% gross margins and requires essentially no CapEx to scale, which is in stark contrast to the semi world. You are also seeing YoY growth that can be orders of magnitude greater
- tfehring 8y ago
  Because that represents cumulative revenue growth in the range of 100%-150% over three years (revenue was "over $100 million" in 2014 [0]) and it's not difficult to get to a high DCF valuation by (over?)extrapolating exponential growth at those types of rates. The absurd P/E ratio is arguably less relevant because expenses scale well for SaaS businesses. Slightly more cynical answer: Big companies like SAP are bad at innovating, but their shareholders want to see growth. They have access to plenty of cheap capital, and buying companies that are actually innovating is one way to grow. Qualtrics and their bankers know this, and it means that they have all the leverage and can demand a premium. (Qualtrics's management may have also needed a premium to convince them to go work for SAP. I wouldn't blame them.) Also, there's a principal-agent problem: SAP's shareholders might be better off if SAP just returned the capital to them through dividends or buybacks and let them buy Qualtrics shares themselves, either in the private markets or after an eventual IPO. But SAP's management would rather manage a bigger company than a smaller one, and it doesn't look good for them to effectively throw up their hands and say they're all out of ideas. I genuinely believe that there's some truth to both explanations, but your guess as to their relative importance is as good as mine. [0] https://www.businessinsider.com/qualtrics-becomes-1-billion-business-2014-9 https://www.businessinsider.com/qualtrics-becomes-1-billion-...
twtw 8y ago
I found this excerpt from their S-1 interesting: > We use open source software in our platform that may subject our platform to general release or require us to re-engineer our platform, which may harm our business. > We use open source software in our XM™ Platform and expect to continue to use open source software in our platform in the future. There are uncertainties regarding the proper interpretation of and compliance with open source software licenses. Moreover, we cannot assure you that our processes for controlling our use of open source software in our XM™ Platform have been or will be effective. Consequently, any of these circumstances could result in reputational harm and harm to our business and results of operations. In addition, if the license terms for the open source software we utilize change, we may be forced to re-engineer our platform or incur additional costs to comply with the changed license terms or to replace the affected open source software. Although we have implemented policies and tools to regulate the use and incorporation of open source software into our XM™ Platform, we cannot be certain that we have not incorporated open source software in our platform in a manner that is inconsistent with such policies. Can someone more familiar with these filings comment on whether this is typical, or is this corporate speak for "we are violating the GPL and hope no one can prove it?"
- Maxious 8y ago
  FWIW Pivotal's S-1 https://www.sec.gov/Archives/edgar/data/1574135/000104746918002061/a2234898zs-1.htm https://www.sec.gov/Archives/edgar/data/1574135/000104746918... > Our use of open-source software could subject us to possible litigation or cause us to subject our platform to unwanted open-source license conditions that could negatively impact our sales. > A significant portion of our platform incorporates open-source software, and we will incorporate open-source software into other offerings or products in the future. Such open-source software is generally licensed by its authors or other third parties under open-source licenses. There is little legal precedent governing the interpretation of certain terms of these licenses, and therefore the potential impact of these terms on our business is unknown and may result in unanticipated obligations regarding our products and technologies. If an author or other third party that distributes such open-source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations. In addition, if we combine our proprietary software with open-source software in a certain manner, under some open-source licenses, we could be required to release the source code of our proprietary software, which could substantially help our competitors develop products that are similar to or better than ours. > Our products are based in large part on open source provided under the Apache License 2.0. This license states that any work of authorship licensed under it, and any derivative work thereof, may be reproduced and distributed provided that certain conditions are met. It is possible that a court would hold this license to be unenforceable or that someone could assert a claim for proprietary rights in a program developed and distributed under it. Any ruling by a court that this license is not enforceable, or that open-source components of our products may not be reproduced or distributed, may negatively impact our distribution or development of all or a portion of our products. In addition, at some time in the future it is possible that the open-source cores of our products may be distributed under a different license or the Apache License 2.0 may be modified, which could, among other consequences, negatively impact our continuing development or distribution of the software code subject to the new or modified license.
vimarshk 8y ago
End of Qualtrics for the most part. Positive for companies like Survey Monkey.
vira28 8y ago
Looks like Black Friday came too early this year !!!!!!
mrkstu 8y ago
Biggest exit by a Silicon Slopes (Utah) company (by far)? Ancestry.com was 1.6B, Omniture 1.8B. Plural sight and Domo maybe next?
- shrikant 8y ago
  Pluralsight has already IPO'ed -- isn't that considered an exit event?
- nylonstrung 8y ago
  Domo and Pluralsight are public. The other big outcomes would be Instructure and the sale of Digicert to Thoma Bravo This is more liquidity than all the others put together

94 points by peterkshultz 8y ago

This is very surprising. They were prepping to go public for a couple years, even stacking their c-suite with ex-microsoft executives. (I left Qualtrics a year ago.)

malshe 8y ago
I am baffled by the valuation. I use Qualtrics often for data collection but I never knew it was valued at multiple billions. What's their main revenue source? I don't believe that B Schools pay them so much to warrant this kind of valuation.
- cyrux004 8y ago
  Enterprises. Although at Qualtrics, University usage is often cherished since that's where they started to get popular
- twtw 8y ago
  2017 profit of $2.6M.
- hyperpallium 8y ago
  Acquisitions are sometimes strategic, i.e. it's not what they are doing, but what they will do. It's now accepted that you can lose to startups, and (like bugs), it's cheaper the earlier you nip the acorn in the bud (to clash metaphors). It can indicate the acquirer's own opinion of their competitive vulnerabilities.
- CapnCrunchie 8y ago
  They sell to enterprises. They have customers like BMW, Southwest, etc. They get MBAs to learn to use them in school, then when they have to use a product when they get a job at a fortune 500, they go with Qualtrics since they know how to use it. That's how they got a lot of market penetration.
paxys 8y ago
They were planning to go public in weeks, not years. Looks like the founders/board opted for a guaranteed payday (2-3x share price premium) over stock market uncertainty, but it still seems like an odd decision.
- adventured 8y ago
  $7 billion cash-out for the family that controls Qualtrics, perhaps an irresistible opportunity. It's 30x $266m in profit. They might need to get to $3b or $4b in sales to reach that kind of annual profit generation, if they spend like most SaaS companies do to pursue growth. They might have seen blips over the next five or six years where their valuation ran higher than $8b without the fundamentals to support it (assuming everything went according to plan in the business), however, averaged over time I find it hard to believe they could support an $8b market cap without a dramatic size increase. This party market won't last forever. Excellent sale by the owners (all cash at that, avoiding the downside risk in SAP's stock at 32x earnings; in any other market SAP gets a 20 PE or lower). I also suspect that as a public company, assuming the time it takes to scale to justify an $8b-$10b style market cap (five or six years at least, likely more), and the dilution they'd suffer as a family when it comes to employee stock compensation over time, they might need something more like a $12b+ stable future outcome to match where they're already at with SAP. Introduce business risk, economic risk, stock market risk, and a lot of years to get from here to there - the $7b would seem to make great sense for the Smith family. The best reason to not take this deal, is to keep control of the company - as it is, the Smiths get to keep running it anyway post acquisition and don't have to deal with public shareholders et al.
erikb 8y ago
Today is the first day I hear about this company. What are they doing? Do they have noteworthy customers?

userbinator 8y ago

Apparently "experience management" is now the euphemism of choice for user-tracking... I have their domains blocked in my HOSTS file, and they're one of the ones known for tracking mouse movements and clicks on pages. I hope I do not have to block SAP too...

Rjevski 8y ago
> I do not have to block SAP too... Just FYI, nothing of value will be lost if you do.

dmode 8y ago

Having worked previously at another SAP acquisition, this is pretty much the beginning of end for Qualtrics

whimsical_toad 8y ago
Care to share more details than that?
AndyNemmity 8y ago
Depends on the acquisition, several have went well.
- gaius 8y ago
  Do you have any examples?
  - mzkply 8y ago
    Concur & Hybris come to mind
    - ntsplnkv2 8y ago
      Ariba as well - although they haven't touched it much due to it being a cash cow.
  - majewsky 8y ago
    Acquisitions like Concur/Hybris/Successfactors are a big part of why SAP is currently doing quite well, and the board acknowledges as much. Disclosure: I work at SAP and hold a few shares.
    - swarnie_ 8y ago
      Slightly off topic, what's the culture like at SAP? We've recently picked up a few top level SAP bods to run our smaller business, the changes have been both rapid and dramatic.

twtw 8y ago

> acquire all outstanding shares of Qualtrics for US$8 billion in cash 2017 profit of $2.6M on revenue of $290M. Please ELI5, how does someone decide on a price 26x higher than earnings? EDIT: 3077x earnings - thanks 'adventured.

adventured 8y ago
> how does someone decide on a price 26x higher than earnings? That's 3,077x earnings. $2.6m vs $8b. 26x would be a great price in this market. For the same reason Facebook paid a billion dollars for Instagram, with zero revenue (or Google & YouTube). Aggressive speculation on the future outcome (growth) of what they're buying. They're plausibly betting Qualtrics might be a $3b sales division some day, yielding $500m in profit, or similar. They're willing to pay up now for those hopeful future profits, to take them off the market before a competitor does or Qualtrics gets far larger and more expensive in the future. Definitely a very rich premium they're paying (from SAP's side, it's equivalent to two years of their after-tax profit).
- twtw 8y ago
  > That's 3,077x earnings Whoops. Thanks, updated. Coming from experience with semiconductor companies years back, 3-4x earnings was a typical acquisition price. This speculation on growth is very interesting to me.
  - nylonstrung 8y ago
    Recurring SaaS revenue with good retention is highly predictable with 80-90% gross margins and requires essentially no CapEx to scale, which is in stark contrast to the semi world. You are also seeing YoY growth that can be orders of magnitude greater
tfehring 8y ago
Because that represents cumulative revenue growth in the range of 100%-150% over three years (revenue was "over $100 million" in 2014 [0]) and it's not difficult to get to a high DCF valuation by (over?)extrapolating exponential growth at those types of rates. The absurd P/E ratio is arguably less relevant because expenses scale well for SaaS businesses. Slightly more cynical answer: Big companies like SAP are bad at innovating, but their shareholders want to see growth. They have access to plenty of cheap capital, and buying companies that are actually innovating is one way to grow. Qualtrics and their bankers know this, and it means that they have all the leverage and can demand a premium. (Qualtrics's management may have also needed a premium to convince them to go work for SAP. I wouldn't blame them.) Also, there's a principal-agent problem: SAP's shareholders might be better off if SAP just returned the capital to them through dividends or buybacks and let them buy Qualtrics shares themselves, either in the private markets or after an eventual IPO. But SAP's management would rather manage a bigger company than a smaller one, and it doesn't look good for them to effectively throw up their hands and say they're all out of ideas. I genuinely believe that there's some truth to both explanations, but your guess as to their relative importance is as good as mine. [0] https://www.businessinsider.com/qualtrics-becomes-1-billion-business-2014-9 https://www.businessinsider.com/qualtrics-becomes-1-billion-...

twtw 8y ago

I found this excerpt from their S-1 interesting: > We use open source software in our platform that may subject our platform to general release or require us to re-engineer our platform, which may harm our business. > We use open source software in our XM™ Platform and expect to continue to use open source software in our platform in the future. There are uncertainties regarding the proper interpretation of and compliance with open source software licenses. Moreover, we cannot assure you that our processes for controlling our use of open source software in our XM™ Platform have been or will be effective. Consequently, any of these circumstances could result in reputational harm and harm to our business and results of operations. In addition, if the license terms for the open source software we utilize change, we may be forced to re-engineer our platform or incur additional costs to comply with the changed license terms or to replace the affected open source software. Although we have implemented policies and tools to regulate the use and incorporation of open source software into our XM™ Platform, we cannot be certain that we have not incorporated open source software in our platform in a manner that is inconsistent with such policies. Can someone more familiar with these filings comment on whether this is typical, or is this corporate speak for "we are violating the GPL and hope no one can prove it?"

Maxious 8y ago
FWIW Pivotal's S-1 https://www.sec.gov/Archives/edgar/data/1574135/000104746918002061/a2234898zs-1.htm https://www.sec.gov/Archives/edgar/data/1574135/000104746918... > Our use of open-source software could subject us to possible litigation or cause us to subject our platform to unwanted open-source license conditions that could negatively impact our sales. > A significant portion of our platform incorporates open-source software, and we will incorporate open-source software into other offerings or products in the future. Such open-source software is generally licensed by its authors or other third parties under open-source licenses. There is little legal precedent governing the interpretation of certain terms of these licenses, and therefore the potential impact of these terms on our business is unknown and may result in unanticipated obligations regarding our products and technologies. If an author or other third party that distributes such open-source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations. In addition, if we combine our proprietary software with open-source software in a certain manner, under some open-source licenses, we could be required to release the source code of our proprietary software, which could substantially help our competitors develop products that are similar to or better than ours. > Our products are based in large part on open source provided under the Apache License 2.0. This license states that any work of authorship licensed under it, and any derivative work thereof, may be reproduced and distributed provided that certain conditions are met. It is possible that a court would hold this license to be unenforceable or that someone could assert a claim for proprietary rights in a program developed and distributed under it. Any ruling by a court that this license is not enforceable, or that open-source components of our products may not be reproduced or distributed, may negatively impact our distribution or development of all or a portion of our products. In addition, at some time in the future it is possible that the open-source cores of our products may be distributed under a different license or the Apache License 2.0 may be modified, which could, among other consequences, negatively impact our continuing development or distribution of the software code subject to the new or modified license.

vimarshk 8y ago

End of Qualtrics for the most part. Positive for companies like Survey Monkey.

vira28 8y ago

Looks like Black Friday came too early this year !!!!!!

mrkstu 8y ago

Biggest exit by a Silicon Slopes (Utah) company (by far)? Ancestry.com was 1.6B, Omniture 1.8B. Plural sight and Domo maybe next?

shrikant 8y ago
Pluralsight has already IPO'ed -- isn't that considered an exit event?
nylonstrung 8y ago
Domo and Pluralsight are public. The other big outcomes would be Instructure and the sale of Digicert to Thoma Bravo This is more liquidity than all the others put together