On Saturday, German software corporation SAP offered to buy US-based web software company SuccessFactors for a $3.4 billion cash deal. At $40 per share, a premium of 52 percent over both its Friday closing price and one-month volume-weighted average price, the proposition is competitive and will likely hold up against unforeseen counter bids. Both companies stand to gain considerably from the strategic agreement. JPMorgan Chase advised SAP, while Morgan Stanley advised SuccessFactors.
What it means for SuccessFactors
Like competitors Taleo Corp and Kenexa Corp, SuccessFactors builds human resources software that allow companies to review the performance of their employees. It first went public at $10 a share four years ago, and has since performed glowingly. With shares gaining 26 percent over the past three months, SuccessFactors is currently evaluated at about $2.2 billion. Already, the company serves a total of 15 million paying users and more than 3,500 customers. Expectations for 2011 revenue are high. Though SuccessFactors has not given a profit outlook, it has mentioned an expected jump of 59 percent.
SuccessFactors will officially maintain its independence from the group as a separate unit, though founder and Chief Executive Lars Dalgaard will join SAP’s executive board as well as run its cloud business division. Dalgaard told Reuters (in a phone conference yesterday) that the acquision “would accelerate SuccessFactors’ roadmap by 10 years.”
What it means for SAP
For SAP, the offer marks the company’s efforts to become an industry-leader in cloud computing, a fast-growing space still led by pioneer Salesforce.com. “While our growth remains primarily organic, where we can innovate faster with acquisitions, we take action. In this case, to become a cloud powerhouse,” SAP co-CEO Bill McDermott told Reuters yesterday. While SAP has earned business cred with mid-sized companies from its Business by Design software, it has struggled to hold up against U.S. rival Oracle Corp in cloud computing. In October, Oracle announced a $1.5 billion deal to acquire cloud computing firm RightNow Technologies Inc, a rival of SAP.
In response, SAP is making huge (costly) efforts at catching up. In order to fund the deal, SAP will take 1 billion euro ($1.34 billion) term loan, aimed to close in the first quarter of 2012. If it withstands, this will slightly dilute earnings per share in the upcoming year but prove profitable for the German company thereafter. In the long-term, the deal enables SAP to reach its ambitious goal of generating 20 billion euros ($26.9 billion) in revenue by 2015 while maintaining its 35 percent margin goal.