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 Oracle (NASDAQ:ORCL).
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 research note.
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.