SAP is paying $3.4 billion, which is a lot of money for SuccessFactors, to gain some real cloud computing clout versus rivals Salesforce.com and Oracle.
Should SAP AG (NYSE:SAP) consummate its $3.4 billion
offer to acquire Web-based human resources software maker SuccessFactors
(NASDAQ:SFSF), it will give the enterprise application giant some much needed
credibility in cloud computing versus rivals Salesforce.com (NYSE:CRM) and
SAP certainly showed that it needs the clout, paying $40 per share, or roughly
a 52 percent premium over the company's Dec. 2 closing price of $26.25 and a
multiple of 10 times the company's expected 2011 run rate of $300 million to $330
million. That's a lot of money for an unprofitable company that provides
performance management and other tools human resource managers use to keep
companies humming along.
Forrester Research analyst Paul Hamerman said SAP inked
the deal for a couple key reasons. For one, its cloud strategy, led by its
Business ByDesign product, has been slow to grow in the market.
For another, while
SAP's existing on-premises HR management software has more than 13,000 customers, the
company's learning and talent management applications are only used by a few
thousand of those clients.
The apps just haven't been on par with rivals' products,
which means fewer opportunities to bring on-board new and existing customers to its
own human capital management software. That weakness has set up a scenario with
big-time SAP customer Siemens AG using SuccessFactors' talent management apps
for its 400,000-plus employees.
"By acquiring SuccessFactors, SAP puts itself into a
much stronger competitive position in human resources applications and
reaffirms its commitment to software-as-a-service as a key business
model," Hamerman wrote in
a blog post Dec. 3.
Indeed, SAP will gain SuccessFactors' 15 million active
seats spread across not only Siemens AG, but 20th Century Fox and the U.S.
Department of Homeland Security, among its more than 3,500 customers.
SAP's bid for SuccessFactors advances the growing trend
of larger companies snapping up smaller providers of enterprise application
software delivered through a Web browser.
Earlier this year, Salesforce.com landed Radian6,
reconstituting the concern's social monitoring software into its Social Marketing Cloud just last week.
Oracle acquired Web-based customer relationship management (CRM) software
provider RightNow Technologies in October to better compete with
Salesforce.com. SAP's bid for SuccessFactors shows it wants to be an active
participant in the burgeoning cloud market.
Global Equities Research analyst Trip Chowdry called
SAP's bid for SuccessFactors timely in the wake of Oracle's bid for RightNow
and the database software giant's impending Oracle Public Cloud suite.
"As we have said before, now that every company has
a cloud strategy including products and services - cloud computing is not an
industry but a necessary feature offering," Chowdry wrote in a Dec. 3
Chowdry believes Salesforce.com and SAP have much to fear from
Oracle's Public Cloud, which Salesforce.com CEO Marc Benioff has described as virtualization software.