July 27, 2020 / 3:32 PM / in 15 days

Breakingviews - SAP may bank a lucky Qualtrics IPO win

SAP logo at SAP headquarters in Walldorf, Germany, January 24, 2017.

LONDON (Reuters Breakingviews) - Sometimes even a bad idea can make money. That may be the case with SAP’s 2018 acquisition of survey-software seller Qualtrics. The German IT giant’s chief executive, Christian Klein, now plans to float the business. At least rich tech valuations mean Qualtrics could be worth more than SAP paid.

The 2018 deal was the baby of former SAP boss Bill McDermott, who left abruptly last year to run a competitor. Klein and Jennifer Morgan took over as co-CEOs, but the latter left on April 30. Klein, now in sole charge, said late on Sunday that he wants to list a minority stake in Qualtrics, which hawks software so that companies can monitor how employees and customers feel about their products. 

The logic behind the latest move is at odds with why SAP bought Qualtrics, just four days before the target was supposed to IPO in 2018. Klein wants to give the U.S.-focused group more autonomy so that it can sell survey software to companies that don’t use SAP’s core database products. McDermott’s original idea envisaged boosting the U.S. group’s top line mostly by selling it to SAP customers. The new plan is also different to the way SAP manages other units like procurement tool Ariba, and travel and expense management application Concur. They’re both more tightly integrated into SAP’s product suite.

Klein could still bank a win in financial terms, since U.S. software company valuations have soared since 2018. One of Qualtrics’ public markets peers - SVMK, better known as SurveyMonkey - has more than doubled in value since SAP unveiled the purchase on Nov. 11, 2018. SVMK, and another rival Medallia, on average trade at 9 times revenue for the most recent four financial quarters. They are slower-growing and on average have a lower gross profit margin than Qualtrics. Give the SAP-owned unit, say, a 20% valuation premium, and it would be worth $8.5 billion. Sometimes it’s better to be lucky than right.

Breakingviews

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