991RA SAP Announces Plans to Acquire SuccessFactors
What is Happening? On Saturday, December 3, 2011, SAP announced that it had entered into a definitive agreement to acquire SuccessFactors for $3.4 billion, a roughly 10X multiple to estimated calendar year 2011 revenues (and 8X estimated 2012 revenues). The acquisition is expected to be completed in 1Q2012, with the San Mateo, CA-based SuccessFactors to remain a separate entity, renamed “SuccessFactors, an SAP company.” Lars Dalgaard, the founder and CEO of SuccessFactors, will remain in charge at SuccessFactors, as well as taking on a broader role in leading SAP’s Cloud business.
Overall, this is a positive move for SAP customers, as the acquisition immediately makes SAP a leader in Cloud business solutions – with strong synergies in terms of target (large-enterprise) customer footprint. We view this acquisition not only as a means to give serious heft to SAPs Cloud intensions and plans, but to provide it with an infusion of fertile and experienced Cloud DNA, as well as leadership who truly understand what it means to be in a services business. No doubt, SAPs modest success to date in its Cloud business contributed to this move – as SAP is not alone among traditional ISVs, many of whom have been challenged to robustly transition their business, technology and operational models and culture to the Cloud.
On balance we think this will prove to be a smart acquisition that is yet another marker in the mainstreaming of the Cloud. Ultimately, we believe the success of this acquisition should be measured by whether it truly helps SAP transition beyond its strong product-centric culture – as it positions itself for success in a rapidly changing market.
Why is it Happening? Instant Cloud Credibility and Significant Cross-Sell Opportunities. SuccessFactors brings SAP instant credibility as a serious, enterprise-class Cloud provider. While SAP has certainly enjoyed some success selling its LOB On Demand solutions (e.g., Sourcing, Sales, Carbon/Energy Mgmt) to large-enterprise clients, and its ByDesign application suite to SMB customers (and as part of a 2-tier application architecture for larger R/3 installations) – SuccessFactors immediately brings 3,500 customers and 15 million subscribers to the mix.
The SuccessFactors acquisition provides for significant cross-sell opportunities given SAP’s large-enterprise, on-premises footprint that currently includes more than 500 million employees within SAP customer enterprises – including up-selling to the 15,000 HCM deployments that SAP currently maintains. With HCM as the 2nd most popular “core” business application (after CRM) leading large enterprises into the Cloud, this acquisition will clearly position SAP to not only stem future defections (such as what happened when Siemens went to SuccessFactors in the first place), but to position it for significant upside opportunity in this important application sector. By SAPs own estimates, 80 percent of all new HCM deployments will be Cloud-based by 2015.
SuccessFactors had in recent years attempted to broaden its Cloud Business solutions portfolio beyond its Talent and performance management roots. In 2010, the SuccessFactors acquired Inform Business Impact a provider of business analytics and workforce planning software, Software A/S (YouCalc), a provider of real-time analytics and reporting software, and CubeTree, Inc., a provider of social media and collaboration software – and most recently, Plateau Systems, a provider of on-premise and Cloud HR solutions. However, the fruit of these acquisitions are still on the tree, as SuccessFactors remains known primarily as a Cloud HCM company, despite attempting to reposition itself as a provider of tools for analytics, business success metrics, social media and collaboration.
Market Impact While both companies have a significant number of small and mid-range customers, both are squarely large-enterprise focused, and in the short-run, SuccessFactors can easily fit into SAP’s LOB On Demand product mix as its heavy-weight HCM Cloud solution. While the analyst call that Saugatuck participated in on Saturday afternoon largely finesse. . . .CLICK HERE TO READ THE FULL RESEARCH ALERT