SAP plans IPO of it’s subsidiary unit Qualtrics which was acquired for $8 Billion in 2018.

SAP SE, sometimes known by its full name Systems, Applications, and Products in Data Processing, is a German multinational software corporation that makes enterprise software to manage business operations and customer relations. The company is especially known for its ERP software. Qualtrics is the market leader and creator of the Experience Management (XM) category, a large, fast growing and rapidly evolving market. SAP intends to remain the majority owner of Qualtrics. SAP’s primary objective for the IPO is to fortify Qualtrics’ ability to capture its full market potential within Experience Management. This will help to increase Qualtrics’ autonomy and enable it to expand its footprint both within SAP’s customer base and beyond.  

SAP acquired Qualtrics in 2018 – $8 Billion Deal

 SAP bought Qualtrics ahead of its planned IPO in 2018 for around $8 billion. “SAP’s acquisition of Qualtrics has been a great success and has outperformed our expectations with 2019 cloud growth in excess of 40%, demonstrating very strong performance in the current setup,” SAP CEO Christian Klein said in a statement Sunday.

“We decided that an IPO would provide the greatest opportunity for Qualtrics to grow.” SAP said it will continue to hold majority ownership of Qualtrics, and Qualtrics founder Ryan Smith will remain its largest shareholder. SAP said the timing and final decision for the IPO is still pending, and subject to market conditions.

SAP agreed to acquire Qualtrics just four days before Qualtrics was to go public in 2018, recognizing the potential of bringing together experience and operational data (X+O) to help organizations take action. SAP currently owns 100% of Qualtrics shares. SAP will retain majority ownership of Qualtrics and has no intention of spinning off or otherwise divesting its majority ownership interest. Ryan Smith intends to be Qualtrics’ largest individual shareholder. 

SAP is fully committed to Experience Management and the Qualtrics XM Platform™ as a key element of its Intelligent Enterprise Strategy. SAP will remain Qualtrics’ closest and most important co-innovation and go-to-market partner.  A final decision on the IPO and its conditions and timing is pending and subject to market conditions.

What % of Qualtrics unit would be sold through the IPO?

The transaction is not expected to have an impact on SAP’s 2020 or “longer-term” financial targets given its plan to maintain majority control, SAP wrote in its filing. Qualtrics cofounder and CEO Ryan Smith is expected to be Qualtrics’ largest individual shareholder, per the document. Neither company disclosed any guidance on the timing of the planned IPO.

Since SAP, as majority shareholder, will continue to fully consolidate Qualtrics, the transaction is not expected to have an impact on SAP’s 2020 or longer-term financial targets.

In a statement provided to Forbes, Smith said: “Ever since we founded Qualtrics, our goal has been to help companies have a conversation at scale about the experiences their employees and customers are having and leverage our system to take action. This is an exciting time to be part of Qualtrics and SAP, and we’re excited to continue building out the XM ecosystem.” 

What if Qualtrics goes public?

The news comes ahead of German software giant SAP’s earnings report on Monday. The company announced preliminary financial results earlier in July, reporting revenues of €6.74 billion (or just shy of $8 billion USD) — up about 2% from the same period of 2019, and reiterating its guidance for the year. Following that report, SAP’s stock has been on a slow climb and is now up some 16% from last year.   

For Qualtrics’ part, the move towards an IPO highlights the company’s rapid ascent: As a privately-held startup, Qualtrics resisted taking venture capital funding for the first ten years of its existence, only relenting in 2012. By the time of its original IPO plans, it had raised some $400 million and achieved a $2.5 billion valuation.

Had it gone public, it was on track to debut at a market cap of $4.8 billion, meaning that at $8 billion, SAP paid what appeared to be a hefty premium for the company. While it’s unclear what valuation Qualtrics might seek on the public markets this go-round, this IPO stands to give an updated look into the company’s business and financials. 

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