SAP buys customer sentiment tracker Qualtrics for $8 billion

Germany's SAP said on Sunday it was buying Qualtrics International Inc for $8 billion in cash, pre-empting a planned stock market listing by the U.S. firm that specialises in measuring the sentiment of consumers online.

The agreed deal, SAP's biggest since it bought travel and expense management firm Concur in 2014 for $8.3 billion(6.41 billion pounds), backs Chief Executive Bill McDermott's expansion into Customer Relationship Management (CRM) from its core of helping firms run their finance, logistics and human resources.

Qualtrics collects feedback and data on customers, employees, products and brands for 9,000 businesses worldwide, providing real-time insights that are vital in an increasingly digital world.

That, said McDermott, would give SAP an edge over competitors that he said still relied on crunching backward-looking figures such as those for customer churn.

"The legacy players who carried their '90s technology into the 21st century just got clobbered," he told reporters on a conference call. "We have made existing participants in the market extinct."

SAP's competitors include Salesforce and Oracle Corp.

For Qualtrics, the deal marks a dramatic outcome just days before the 16-year-old firm was due to launch a far smaller initial public offering of stock.

"This week was the week that we were ringing the bell," said Qualtrics CEO Ryan Smith, who will stay on in the job. His firm will retain its dual headquarters in Provo, Utah, and in Seattle.

Asked why he chose to team up with SAP, Smith said: "We want to create something legendary."

OPERATION MEETS EXPERIENCE

SAP sees an opportunity in combining its 'operational' data - the company says 77 percent of the world's transaction revenue touches one of its systems - with the 'experience' data the Qualtrics XM Platform gathers.

Smith described SAP's strategy as "inside out" and that of Qualtrics as "outside in".

The two executives met a few months back and quickly struck up a friendship - McDermott said he showed up for lunch at Smith's home in a suit and dress shoes, and the two ended up playing basketball in the yard.

"We hit it off right off the bat," said McDermott, a 57-year-old New Yorker who has headed SAP since 2010.

The SAP boss said previously he was only looking at "tuck-in" acquisitions. He described the Qualtrics deal as transformational in terms of growth potential, comparing it with Facebook Inc's takeover of photo-sharing site Instagram.

Qualtrics expects revenues to exceed $400 million this year, and projects a forward growth rate of greater than 40 percent, not including potential synergies that might arise from being part of SAP. Smith said the business had been consistently cash-flow positive.

By contrast, SAP expects total revenues to grow this year by 7.5 to 8.5 percent to more than 25 billion euros ($28 billion) - although its new cloud-based products are achieving comparable growth rates with those of Qualtrics.

SAP recently launched a new cloud-based sales and marketing suite, called C/4HANA, to supplement its mainstay S/4HANA range that has been sold to 9,500 businesses.

SAP will acquire all of the outstanding shares in Qualtrics and has secured 7 billion euros ($7.9 billion) in financing to cover the purchase price and acquisition-related costs. The deal, which has been approved by the boards of both companies, is expected to close in the first half of 2019.

Qualtrics was advised on the transaction by Qatalyst Partners and Goodwin Proctor, LLP. JP Morgan acted as financial adviser and Jones Day as legal adviser to SAP.