When SAP announced on Sunday that it was spinning out Qualtrics, a company it bought less than two years ago for an eye-popping $8 billion, it was enough to make your head spin. At the time, then CEO Bill McDermott saw it as a way to bridge the company's core operations with customer data, while acquiring a cloud company that could help generate recurring revenue for the ERP giant, and maybe give it a dose of innovation along the way.
But Sunday night the company announced it was spinning out the acquisition, giving its $8 billion baby independence, and essentially handing the company back to founder Ryan Smith, who will become the largest individual shareholder when this is all over.
It's not every day you see founders pull in a windfall like $8 billion, get sucked into the belly of the large corporate beast and come out the other side just 20 months later with the cash, independence and CEO as the largest individual stockholder.
While SAP will own a majority of the stock, much like Dell owns a majority of VMware, the company will operate independently and have its own board. It can acquire other firms and make decisions separately from SAP.
We spoke to a few industry analysts to find out what they think about all this, and while the reasoning behind the move involves a lot of complex pieces, it could be as simple as the deal was done under the previous CEO, and the new one was ready to move on from it.
It's certainly unusual for a company like SAP to spend this kind of money, and then turn around so quickly and spin it off. In fact, Brent Leary, principal analyst at CRM Essentials, says that this was a move he didn't see coming, and it could be related to that fat purchase price. "To me it could mean that SAP didn't see the synergies of the acquisition panning out as they had envisioned and are looking to recoup some of their investment," Leary told TechCrunch.
Holger Mueller, an analyst with Constellation Research, agreed with Leary's assessment, but doesn't think that means the deal failed. "SAP doesn’t lose anything in regards to their [...] data and experience vision, as they still retain [controlling interest in Qualtrics] . It also opens the opportunity for Qualtrics to partner with other ERP vendors [and broaden its overall market]," he said.
Jeanne Bliss, founder and president at CustomerBLISS, a company that helps clients deliver better customer experiences, sees this as a positive step forward for Qualtrics. "This spin-off enables Qualtrics to focus on its core business and prove its ability to provide essential technology executives are searching for to enable speed of decision making, innovation and customization," she said.
Show me the money
Patrick Moorhead, founder and principal analyst at Moor Insight & Strategy, sees the two companies moving toward a VMware/Dell model where SAP removes the direct link between them, which could then make them more attractive to a broader range of customers than perhaps they would have been as part of the SAP family. "The big play here is all financial. With tech stocks up so high, SAP isn't seeing the value in its stock. I am expecting a VMware kind of alignment with a strategic collaboration agreement," he said.
Ultimately though, he says the move reflects a cultural failure on the part of SAP. It simply couldn't find a way to co-exist with a younger, more nimble company like Qualtrics. "I believe SAP spinning out Qualtrics is a sign that its close connection to create symbiotic value has failed. The original charter was to bring it in to modernize SAP, but apparently the 'not invented here' attitudes kicked in and doomed integration," Moorhead said.
That symbiotic connection would have involved McDermott's vision of combining operational and customer data, but Leary also suggested that since the deal happened under the previous CEO, that perhaps new CEO Christian Klein wants to start with a clean slate and this simply wasn't his deal.
Qualtrics for the win
In the end, Qualtrics got all that money, gets to IPO after all and returns to being an independent company selling to a larger potential customer base. All of the analysts we spoke to agreed the news is a win for Qualtrics itself.
Leary says the motivation for the original deal was to give SAP a company that could sell beyond its existing customer base. "It seems like that was the impetus for the acquisition, and the fact that SAP is spinning it off as an IPO 20 months after acquiring Qualtrics gives me the impression that things didn't come together as expected," he said.
Mueller also sees nothing but positives for Qualtrics. "It’s a win [...] for Qualtrics, which can now deliver what they wanted [from the start], and it's a win for customers as Qualtrics can run as fast as they want," he said.
Regardless, the company moves on, and the Qualtrics IPO moves forward, and it's almost as though Qualtrics gets a do-over, with $8 billion in its pocket for its trouble.