SAP enters Cloud, SaaS markets in big way with $3.4 Billion deal for SuccessFactors

Tom Paine

When, a bit more than two weeks ago, SAP co-CEO Jim Hagemann Snabe started talking about being open to major acquisitions and the need to enter new product categories, I predicted a deal was coming soon because the last time he spoke that way the Sybase deal was announced shortly afterwards.

Well, its happened, as SAP (which has its North American headquarters in Newtown Square) today announced a major deal to strengthen its puny position in the Cloud/SaaS space by acquiring SuccessFactors for $3.4 billion. The deal is probably an admission by SAP that it would not be able to achieve organic growth quickly enough through its existing ByDesign and OnDemand platforms.

SuccessFactors claims to have 15 million subscription seats and more than 3,500 customers, and it posted 77 percent revenue growth year-over-year in the third quarter 2011. Headquartered in San Mateo, CA, it was founded in 2001 by Lars Dalgaard. SuccessFactors focuses on Human Capital Managenment and what it calls "Business Execution Software", helping to align people and their performance to corporate goals. Comcast is one example of a major cutomer.

While SAP's PR mentions the Human Capital Management business, in its entirety it seems to speak of broader applications throughout SAP's business.

The bid is actually being made through SAP's SAP America unit. The bid reflects a 52% premium over SuccessFactors' December 2 closing price and will be financed through SAP's cash on hand and a euro 1 billion term loan facility. The transaction is expected to close during the first quarter of 2012 and be slightly dilutive to EPS in 2012 but accretive afterwards, SAP says.

I would expect Wayne-based Kenexa's stock to get a boost from this, although its a somewhat different animal in the HCM market with more of a focus on talent acquisition, in my view.

More to come.


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