SAP is a paying a substantial premium to acquire SuccessFactors, a leading SaaS performance and talent management vendor. The press release of December 3, 2011 states that the deal price of $40 per share is a 52% premium over the Dec. 2 closing stock price.
Even more startling is that SuccessFactors has a revenue run rate of roughly $300 to $330 million for 2011, and the acquisition price of $3.4 billion is more than 10 times revenue! Why then did SAP make this move?
SAP’s cloud strategy has been struggling with time-to-market issues, and its core on-premise HR management software has been at competitive disadvantage with best-of-breed solutions in areas such as employee performance, succession planning and learning management. By acquiring SuccessFactors, SAP puts itself into a much stronger competitive position in human resources applications and reaffirms its commitment to software-as-a-service as a key business model.
In my recent research for a soon-to-be-published Forrester Wave on Human Resource Management Systems (HRMS), I noted that SAP has more than 13,000 customers using its HCM suite. Yet the adoption of SAP’s learning and talent management products is much less (a few thousand, perhaps), which is noted in my colleague Claire Schooley’s “Forrester Wave, Talent Management, Q2 2011.” The Talent Management Wave also clearly shows that SAP’s embedded talent management offerings lag well behind the best-of-breed specialists in learning and performance management. The bottom line here is that SAP HCM customers predominantly run best-of-breed talent management solutions alongside their SAP core HRMS (i.e., the transactional employee system of record).
Siemens AG, for example, a major SAP ERP customer, is one of SuccessFactors’ largest customers, with a deal covering more than 400,000 employees for talent management. The co-existence of best-of-breed talent management solutions (typically SaaS) alongside core HRMS (typically on-premise) is quite common, and both Oracle and SAP have struggled to expand their footprint into the talent management apps. SAP has been working on a SaaS career management solution due out in 2012. Time-to-market has been a challenge for SAP’s SaaS strategy in general, and this product was likely to be too little, too late. Hence the urgency for SAP to pay a large premium to acquire a leading player in talent management. Having SuccessFactors on board represents a significant opportunity to sell the acquired products into the existing ERP installed base.
SuccessFactors’ assets not only include its well-adopted SaaS platform for performance and talent management, but a leading learning management system as well, Plateau, which SuccessFactors acquired in April, 2011. In addition, it provides SAP with workforce planning and analytics (formerly Inform) and a social collaboration platform (formerly CubeTree).
SAP’s cloud (SaaS) applications portfolio has been growing, and now includes Business ByDesign (ERP), Sales OnDemand (CRM), Carbon Impact OnDemand (sustainability), Sourcing OnDemand, and Travel OnDemand (expense reporting). With SuccessFactors, SAP adds a proven SaaS talent management platform to it portfolio and increases its commitment to SaaS as a business model.
Subscription revenue for SAP in the first 9 months of 2011 has been flat and represents approximately 3.7% of total software revenues. With the addition of SuccessFactors, which grew 42% last quarter, its SaaS revenue will certainly get a boost and hopefully will energise its overall commitment to the cloud, a key pillar of SAP’s innovation strategy.
Posted by Paul Hamerman