Volume 11, Number 40 -- December 6, 2011

SAP to Buy Cloud HCM Vendor for $3.4 Billion

Published: December 6, 2011

by Alex Woodie

SAP last week announced plans to buy SuccessFactors, a cloud-based provider of human capital management (HCM) software. The $3.4 billion deal is expected to close in early 2012, and provide a long-term boost to SAP's cloud strategy.

SuccessFactors is a major player in the cloud services arena, with a reported 15 million subscribers to its HCM services across 3,500 customers in 168 countries. The publicly traded company, which has more than 1,450 employees, recorded $206 million in revenue last year, and has recently seen quarterly revenues jump 77 percent. The San Mateo, California, company has not yet been profitable, and has net losses totaling $164 million over the last four years.

SAP obviously sees great potential with SuccessFactors, and is keen to integrate it into its set of cloud and hybrid cloud offerings, which includes its cloud suite for small and medium-sized businesses, SAP Business ByDesign, as well as targeted cloud offerings for large enterprises, such as SAP Sales on Demand.

SAP says it has worked with SuccessFactors in the past to integrate the cloud-based HCM service offering into SAP's customers' ERP systems. SAP claims to have 15,000 HCM deployments of its own, and counts them among the 500 million employees around the world who use SAP software.

"The cloud is a core of SAP's future growth, and the combination of SuccessFactors' leadership team and technology with SAP will create a cloud powerhouse," stated SAP Co-CEO Bill McDermott in a press release.

"This is a revolutionary combination of proven capabilities that will allow SuccessFactors to accelerate our roadmap by 10 years, and bring the world's leading application knowledge and intellectual property to our customers through the cloud, and the largest applications customer base instantly," Lars Dalgaard, founder and CEO of SuccessFactors, stated in a press release.

SAP's offer, which has been agreed to by both companies, is for $40 per SuccessFactors share, which represents a 52 percent premium over the company's stock value on Friday. SuccessFactors will remain an independent company upon completion of the transaction. The plan is for Dalgaard to lead the cloud business of SAP and become a member of the executive board, in addition to his existing job leading SuccessFactors.

SAP says the transaction is expected to close in the first quarter of 2012 and be slightly dilutive to its Non-IFRS earnings per share in 2012 and accretive in subsequent years.

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Editor: Alex Woodie
Contributing Editors: Dan Burger, Timothy Prickett Morgan
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