SAP Adds New Cloud IP With $3.4B Rescue of SuccessFactors
SAP, the world's largest enterprise application maker and a well-known old-school-type IT provider, is looking to a relatively small San Mateo, Calif.-based company to lead it into the cloud application business of the future. It appears to be saving the bacon of that company at the same time.
Walldorf, Germany-based SAP announced Dec. 3 that it will pay $3.4 billion in cash, or about $40 per share, for publicly traded SuccessFactors, which makes a progressive brand of human resources data management software provided via cloud service.
The per share purchase price represents a whopping 52 percent premium over the Dec. 2 closing stock price of $26.25. SAP ended the Dec. 2 trading session at $59.54 per share.
SAP, which has been struggling with a cloud application strategy for several years and has fallen behind other competitors in the subscription-application-service market, needs a transfusion of new-generation IP. SAP, founded in 1972, has 54,500 employees globally.
"We have already spent a lot of efforts to try and build a next-generation platform for the cloud, and we feel comfortable around that. SuccessFactors has a proven track record of understanding the DNA it takes to be successful in the cloud," SAP CFO Dr. Werner Brandt said on a conference call to analysts and journalists.
Brandt said 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."
SuccessFactors will remain independent and be named "SuccessFactors, an SAP Company," Brandt said. SuccessFactors founder and CEO Lars Dalgaard will remain CEO of the company and join the SAP board of directors, Brandt said.
SuccessFactors' Business Execution Suite is used in 6 million deployed enterprise seats in about 4,000 companies around the globe. It competes directly against such cloud-application providers as Salesforce.com, Microsoft, and Google.
SF Yet to Experience Financial Success Factors
SuccessFactors, whose market capitalization value (total value of all its outstanding shares) is estimated at $2.21 billion, is not yet a profitable company. Although it brought in record total revenue of $91 million and gross profit of $58 million in the quarter ended Sept. 30, 2011, the company showed a net loss of $26 million on the books. The company spent $81 million on both sales and research and development during that quarter.
In the quarter ended June 30, 2011, SuccessFactors posted a $6 million net loss, so the company's financial fortunes were not exactly headed in the right direction. Thus, it appears that SuccessFactors needed a mentor as badly as SAP needed a new injection of IT innovation and talent.
Ten-year-old SuccessFactors, which has 1,447 employees worldwide, was founded by Dalgaard in 2001 and went public in 2007. Its software services are translated into 32 languages; the company currently has about 4,000 customers and 6 million users in 60 industries located in 185 countries.