Shares of SAP SE fell more than 6 percent in trading Monday after the business-software company said it would pay $8 billion in borrowed cash for Qualtrics, a $400 million (yearly sales) survey company that collects and analyzes consumer and worker preference data for 9,000 brands, including the Air Force, Aramark, BMW, Pfizer, Target, and Walt Disney.
That is the most SAP has paid for an acquisition since the company was founded by four ex-IBM engineers in the 1970s. With $25 billion in yearly sales, Germany-based SAP employs around 100,000 worldwide, including 3,000 at its U.S. headquarters in Newtown Square.
The sale, approved by Qualtrics investors, cancels Qualtrics' planned initial public share offering (IPO) by almost doubling the $4.3 billion valuation (on a sale of around 10 percent of sales) that its investment bankers expected from the planned public share sale. That was already a big jump on the $2.8 billion Qualtrics was worth at its last capital raise last year. But SAP, under chief executive Bill McDermott, of Villanova, has a history of paying up for smaller software outfits he thinks will help his company boost applications for existing corporate customers and reach new end users.
SAP's stock closed down Monday 6.36 percent, at $101.42, nearing its 52-week low of $99.20.
Qualtrics was founded in 2002 by Scott Smith, a Brigham Young University marketing professor, and his sons, chief executive Ryan Smith and president Jared Smith, who together control 48 percent of the company. Each of the three will be a billionaire, if SAP completes the deal as scheduled this winter. Ryan Smith will run the company for SAP, said McDermott.
"We want to be working with SAP and that's what we're most excited about," Smith said on a conference call.
Other major investors that will profit from SAP's purchase are Utah-based Grandview Holdings and Silicon Valley tech investment firms including Sequoia Capital. Venture capitalists invested a total of $400 million in Qualtrics since it began accepting outside money in 2012.
The market's initial negative reaction dropped SAP shares to its lowest price since just after its last acquisition, February's $2.3 billion purchase of $1 billion (yearly sales) business-incentives software maker Callidus Inc.
SAP's biggest deal was its 2014 acquisition of travel-and-entertainment tracking software maker Concur for $7.2 billion. SAP sought to justify the high price it has agreed to pay, compared to Qualtrics' relatively modest sales, by noting analysts already expected it to grow 40 percent a year — which SAP says it can accelerate.
In a statement Sunday, McDermott called Qualtrics "the global pioneer of the experience management [XM] software category."
Competitors include SurveyMonkey, which went public last month, but has since lost one-third of its market value. SurveyMonkey shares rose 6.78 percent Monday to close at $11.50.
McDermott called the deal transformational, arguing that adding the personal data and analytics Qualtrics collects to SAP's operating data from thousands of corporate clients will allow SAP to sell "an end-to-end solution with immediate global scale."
Qualtrics says its customers, including "99 of the top 100 U.S. business schools," use Qualtrics to measure what their clients and employees want, present analytics on easy-to-read dashboards, and exploit that information with new strategies.
Customers don't need extensive coding expertise to use Qualtrics's tools, and can use features such as automated sentiment analysis of open-text responses. Saks Fifth Avenue Inc. uses Qualtrics to create questionnaires for feedback on its fashion brands; Whole Foods Market Inc. uses it to gather and analyze the qualifications of its employees.
"SAP is launching a greater push into CRM [Customer Relationship Management], which is growing at 20 percent and is becoming one of the biggest markets in the software space," said Holger Schmidt, an analyst at Bankhaus Metzler. "It's about collecting more data — about products, customers, and supply chains."
In a conference call with investors last month, McDermott said SAP's "chief innovation strategy is growth." He said previous acquisitions have taught SAP how to make even premium-priced assets profitable by boosting sales to SAP's existing customers. Critics have said the frequent acquisitions make it difficult to track how well SAP meets its sales goals.