SAP AG (NYSE: SAP) said its unit SAP America Inc. has agreed to buy all outstanding shares of SuccessFactors Inc. (NYSE: SFSF) for $40.00 per share in cash, representing an enterprise value of about $3.4 billion.
The acquisition is expected to accelerate SAP's momentum as a provider of cloud applications, platforms and infrastructure. SAP said the acquisition marks another stride in its strategy of delivering solutions on premise, in the cloud and on mobile devices.
The acquisition is anticipated to be funded from SAP's cash on hand and a 1 billion euro term loan facility. The transaction is expected to close in the first quarter of 2012 and be slightly dilutive to SAP's Non-IFRS earnings per share in 2012 and accretive in subsequent years.
SAP's proposed acquisition of SuccessFactors adds a high growth business (with huge cross-sell potential), experience of running a SaaS business at scale, and strong management and sales talent, said Ross MacMillan, an analyst at Jefferies.
It's a full valuation on calendar 2012, but given the growth potential and strategic nature of the deal, its difficult to fault the rationale. SAP's proposed acquisition of SuccessFactors is a bold move, but with a strong rationale, said MacMillan.
MacMillan sees three major positives: SuccessFactors is a high-growth business, but given the cross-sell opportunity, it could grow faster within SAP; SAP gets a leading SaaS HCM play and immediately becomes more competitive versus disruptive companies encroaching on its base; and SAP gains management and sales talent that has grown a SaaS business of scale which could prove very useful for a company that has failed to get its internal SaaS strategy moving as quickly as it should.
MacMillan said only 14 percent of SuccessFactors' customers are in the SAP base and SuccessFactors has 15 million users today as compared to 500 million potential user employees within SAP's customer base.
MacMillan said SuccessFactors will remain an independent entity (like Sybase) but SAP reps will have SuccessFactors quota and so there is the possibility for a lot of growth to be driven through a much larger sales organization.
Street models have SuccessFactors growing 26 percent in calendar 2012 (in line with organic billings growth expectations in calendar 2011). This could prove conservative.
The $40 a share bid is a 54 percent premium to the 20-day trailing average of SuccessFactors and close to the company's all time high share price in April 2011. On calendar 2012, SAP is paying 7.7 times Equity Value/Sales for SuccessFactors.
Despite investors thinking Oracle Corp. (NASDAQ: ORCL) acquisition of RightNow Technologies (NASDAQ: RNOW) was a one-off, we now have an even bigger SaaS deal, said MacMillan.
MacMillan said other HCM vendors will likely catch a bid, but other SaaS domains not well addressed by big apps guys could also see interest, e.g. Concur Technologies Inc. (NASDAQ: CNQR) or Ariba Inc. (NASDAQ: ARBA).
SAP stock closed Friday's regular trading down 0.78 percent at $59.54 on the NYSE, while shares of SuccessFactors closed up 1.12 percent at $26.25.