SAP AG, the largest maker of business-management software, agreed to buy SuccessFactors Inc for US$3.4 billion in cash, stepping up competition with archrival Oracle Corp in the cloud--computing market.
SAP will pay US$40 a share for California-based SuccessFactors, which makes software that is used to manage employee performance. That is 52 percent more than the closing price on Friday, the most recent trading day, Germany--based SAP said on Saturday in a statement.
The deal extends SAP’s reach in the market for cloud-computing, which lets customers rent software delivered over the Web rather than install it on their own machines. The company is promoting the idea as a safe way to outsource data centers and reduce the need for hardware. The SuccessFactors acquisition comes six weeks after Oracle agreed to buy another cloud competitor, RightNow Technologies Inc, for US$1.5 billion.
“This is a much-needed move by SAP,” said Ray Wang, head of San Francisco-based Constellation Research, a research and advisory firm focused on technology. “What SAP had in human resources — basic transactional software such as payroll — was good enough for the old era. In the new era, performance reviews and talent management will be important.”
SuccessFactors has more than 3,500 customers, with more than 15 million subscribers in 168 countries. The company is predicted to have US$502 million in revenue in 2013, up from US$332 million this year, according to analyst estimates compiled by a Bloomberg.
“We saw Oracle buy RightNow Technologies just a couple of weeks ago at 5.5 times that company’s next year revenue, and SAP is going to pay almost eight times 2012 revenue,” said Brendan Barnicle, an analyst at Pacific Crest Securities, “But these guys are growing much faster than other people in software on demand, this is a marvelous addition for SAP.”
SAP co-chief executive officer Bill McDermott said on a conference call on Saturday that the SuccessFactors deal would help SAP achieve its goal of exceeding 20 billion euros in sales in 2015. SuccessFactors founder Lars Dalgaard will join SAP’s board and head up the company’s cloud business.
The deal will “slightly” dilute earnings per share next year, before adding to profit in subsequent years, the company said. SAP would still reach a 35 percent profit margin by 2015 — even though companies that sell software that is accessed over the Internet have a lower margin than other software, SAP chief financial officer Werner Brandt said.
McDermott said the scale SuccessFactors brings to SAP’s cloud offering will help it maintain the 2015 margin target. The company expects to complete the transaction in the first quarter of next year.
The SuccessFactors deal shows that SAP co-chief executives McDermott and Jim Hagemann Snabe, who took the helm in February last year, do not have the same reluctance as the company’s last two chief executives, Leo Apotheker and Henning Kagermann, to expand through acquisitions.
While Oracle Corp has spent more than US$42 billion on takeovers since the beginning of 2005, SAP had only made only two large acquisitions in its 39-year history before SuccessFactors: Sybase, a maker of mobile-device applications, for US$5.8 billion in May of last year and business-intelligence company Business Objects for 4.8 billion euros (US$6.43 billion) in 2007.
SAP paid a premium of 56 percent for Sybase and 20 percent for Business Objects, based on the 20-day average share price of the target company before the purchase was announced, Bloomberg data showed. Over the past five years, the average premium paid for 56 North American software targets valued at more than US$500 million was 24 percent, according to the data.
“The price is high,” said Frank Niemann, a consultant at Pierre Audoin Consultants in Munich. “On the other hand, SAP would not be able to build such a solution with such a success in a reasonable period of time.”
The global market for cloud services could surge from US$68.3 billion last year to US$148.8 billion in 2014, according to research firm Gartner Inc.
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