SAP Plans to Spin Out Qualtrics, Take It Public

Business software group SAP plans to spin off and float Qualtrics, the US specialist in measuring online customer sentiment that it acquired less than two years ago for $8 billion (roughly Rs. 59,862 crores).

The move to list Qualtrics in the United States would partly unwind former CEO Executive Bill McDermott's last big takeover and rebalance SAP back towards its German roots under successor Christian Klein.

McDermott was criticised by investors at the time for overpaying for Qualtrics, which under founder Ryan Smith had been four days away from floating when SAP trumped the valuation it had hoped to achieve on the stock market.

Yet with the market rallying hard since the deal, analysts at Jefferies said Qualtrics could be valued at as much as EUR 14 billion (roughly Rs. 1.22 lakh crores) if priced in line with tech growth stocks now trading at 30 times revenue.

Investors reacted by pushing SAP shares 3.9 percent higher, closing in on record highs, as Klein sought to close a chapter of management turmoil triggered by the Qualtrics deal.

News of the spinoff came before SAP published full second-quarter results on Monday that confirmed the leader in enterprise resource planning software in the second quarter had bounced back from the coronavirus pandemic.

Non-IFRS operating profit rose 7 percent to EUR 1.96 billion (roughly Rs. 17,150 crores) at constant currency on a 1 percent increase in total revenue. SAP restated its 2020 outlook for a rise of between 1 percent and 6 percent in operating profit.

Standing alone

Qualtrics, whose Experience Management platform gathers real-time feedback from customers to help analyse how a company's products or services are performing, achieved a 32 percent increase in revenue in the quarter.

Yet it remains the smallest of SAP's four business segments, reporting a profit of just EUR 7 million (roughly Rs. 61 crores) in the period.

Klein, calling the spinoff a "win-win situation", said it would give Qualtrics the opportunity to achieve its potential with a higher degree of autonomy.

SAP would keep control over and consolidate Qualtrics, which it still sees as a key part of its "Intelligent Enterprise" proposition that spans everything from finance to personnel, logistics, and customer relationship management.

Under the proposed initial public offering, Smith would become the largest individual shareholder in Qualtrics. He and his family had previously owned 80 percent of the business.

SAP Chief Financial Officer Luka Mucic said details of the offering were still to be worked out, but noted it was typical for stock market offerings of tech companies to comprise a stake of 10 percent - 15 percent.

The goal, he added, would be to capitalise Qualtrics properly while giving SAP more latitude to invest in developing its own business or make smaller "tuck-in" acquisitions.

© Thomson Reuters 2020

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