Qualtrics is about to release its IPO for $ 8 billion

FRANKFURT (Reuters) – German publisher of SAP business software (SAPG.DE) agreed to buy Qualtrics International for $ 8 billion in cash, anticipating the listing of the American company specializing in monitoring the morale of Internet users.

This agreement will help the most valuable European technology group to strengthen its customer relationship management (CRM) software offering, a top priority for CEO Bill McDermott, in a race against CRM specialist SalesforceCRM.N) and his rival Oracle (ORCL.N).

Announced late Sunday, this transaction is the largest acquisition of SAP since the acquisition of the expense management company and expenses, Concur, for $ 8.3 billion in 2014.

One person involved in this deal said it was the largest ever acquisition of a technology company about to debut in the market.

Qualtrics captures and analyzes brand and product data from real-time sources, including social media and e-mail, and should help SAP customers better understand their own customers' experiences.

The main strength of SAP is helping some of the world's largest companies manage their financial, logistics and human resources operations.

"Experience and operational data is a powerful combination," McDermott told reporters during a call. "It's the most pristine asset of the business software industry."

SAP shares fell 4.2% at 09:10 GMT, with traders and analysts estimating that SAP was overpaying.

"This could be a valid strategic justification and the revenue growth is impressive, but it's still expensive," said one trader.

McDermott said that once the deal was reached, SAP would get the fastest revenue growth of any business application software company.

Revenues would increase to double digits, while non-IFRS operating income would exceed revenues, he said. SAP will update its forecasts once the transaction is completed, which is expected in the first half of 2019.

Knut Woller, an analyst at Baader Helvea, said that at 21.5 times annual revenue, the price that SAP was paying is almost double the multiples of comparable recent transactions of 11.2 times. Woller has issued a purchase recommendation on SAP shares.

Qualtrics expects a turnover of more than $ 400 million this year and forecasts a growth rate of over 40%, not counting the potential synergies that may result from SAP's integration. It has 9,000 customers, mainly in the United States.

SAP expects its own revenue will grow this year from 7.5 to 8.5 percent, to more than 25 billion euros.

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Bernstein analyst Mark Moerdler, who believes that SAP "outperforms," ​​said the acquisition would fill a gap in SAP's portfolio.

"Although SAP has paid a high price for its acquisitions, it has acquired quality assets and has been a globally successful acquirer. We believe that this acquisition is more and more positive for our thesis, "he wrote in a note.

Moerdler also said that this acquisition would make SAP a more competitive competitor to Adobe (ADBE.O), with whom she recently announced a customer data sharing initiative with Microsoft (MSFT.O), experience management and e-commerce.

SAP will acquire all of Qualtrics' outstanding shares and has secured € 7 billion of financing to cover the purchase price and acquisition costs, which has been approved by the boards of directors of both companies. .

Qualtrics CEO Ryan Smith, who owns about 40 percent of the 16-year-old company with his brother and father, will stay and maintain his dual headquarters in Provo, Utah, and Seattle.

Smith told Reuters that the initial public offering would have valued the company at least $ 6 billion.

"We were going to win a $ 20 or $ 30 billion day, like a ServiceNow Inc (NOW.N) or a working day Inc (WDAY.OSmith said. "We have not been under any financial pressure to do anything."

Smith said the company had always generated positive cash flow since its inception in the basement of his parents.

McDermott stated that Smith and he had met a few months ago and had quickly formed a friendship: he arrived one day to have lunch in Smith's suit and street shoes and both ended up playing basketball in the courtyard.

"We got along fine," said McDermott, a 57-year-old New Yorker who has been leading SAP since 2010.

The SAP boss had previously stated that he was only interested in "hidden" acquisitions. He called the Qualtrics deal a transformation in terms of growth potential, comparing it to that of Facebook Inc. (FB.O) takeover of the Instagram photo sharing site.

Qtralyst Partners and Goodwin Proctor, LLP advised Qualtrics on the transaction. JP Morgan (JPM.N) acted as financial advisor and Jones Day as SAP's legal advisor.

($ 1 = 0.8835 euros)