Everyone and everything has a value, and thus, everyone and everything has a price to be paid. When a company goes public, they open the floodgates for investors, consumers, and industry rivals to gain access to all information that becomes transparent following an initial public offering (IPO). In some cases, an IPO can garner significant interest from investors and result in a spontaneous acquisition from a company with the necessary capital to do so.
Ryan Smith, CEO, and co-founder of Qualtrics, a survey software developer based in Provo, Utah filed for an IPO earlier this month, in hopes of taking his private company to the next level. What he didn’t realize was that, en route to ringing the opening bell, his company would be acquired. The company had been recently valued at $2.5 billion, after raising around $450 million from venture capital firms like Accel, Insight Venture Partners and Sequoia Capital, according to Fortune. Qualtrics was predicted to have one of the hottest IPOs this week and then SAP SE (SAP) came in for the kill.
“I feel more at peace about this than going public. We didn’t need to go public. We had no investor pressure, no financial pressure, and we had no employee pressure. We were going public for the sole reason of creating the category. And nothing is bigger for that than this combination. It would take ten years to do what we are going to do [with SAP].”
–Ryan Smith, Chief Executive Officer & co-founder, Qualtrics International
The German-based software behemoth announced late Sunday evening that it was purchasing Qualtrics for $8 billion in cash taken from a silver briefcase just like in the movies. SAP SE (SAP) had been interested in Qualtrics for quite some time due to the company’s aspirations for increased offerings in the customer relations management sector of their business. Given that the company has grown to be the biggest software company in Europe, and the twelfth largest tech company based on Forbes 2018 ranking of public companies, the acquisition of a company with data analytics software ready to meet high demands seemed like a lucrative decision.
“Yes, we did pay a handsome price, but it’s well deserved. This is the most simple, if not the easiest thing we’ve ever done on the M & A front. Qualtrics is our crown jewel.”
Bill McDermott, Chief Executive Officer, SAP
Representing the largest-ever purchase of a VC-backed enterprise software company, SAP’s (SAP) acquisition of Qualtrics will allow the two companies to dominate the CRM space, a sector currently with Salesforce at the top of the food chain. Every tech exec worth their weight in bitcoin knows that access to an understanding of consumer data directly correlates to profit or lack thereof. Qualtrics has picked up speed over the last few years because of its ability to collect data on customers, brands, employees, and products to give companies key insights on how to operate and/or augment business practices. Hence, SAP’s (SAP) decision to gain access to quality data analytics.
Though the acquisition may benefit SAP (SAP) in the long-run, the market responded negatively to the price the company agreed to pay for Qualtrics. SAP’s shares dropped 5% in early Frankfurt trading, selling for $101.34 per share. Despite analyst criticism, McDermott, SAP’s CEO, stands by the company’s acquisition deal and went on to explain how the deal will have an effect similar to Facebook’s (FB) acquisition of Instagram.
“Under Armor runs their whole business on SAP, everything from their customer relationships in every single channel on any device, including direct to consumer, wholesale, and retail. We know the prior history of the consumer, but what we don’t know is why the customer feels a certain way about Under Armour’s Hovr shoe…But you know who knows that? Qualtrics knows that. They know why the customer likes the size, the fitt, the color style..”
–Bill McDermott, Chief Executive Officer, SAP
Good qualitative data, and subsequent insight to how these statistics, can help a company grow as well as present a potential opportunity for investors looking into the sector. SAP (SAP) acquired Qualtrics to take their position a leader in the tech industry to greater heights and, though they paid more than a pretty penny, we will see in the coming months if the investment pays off.