Morning Markets: Global software giant SAP is buying Utah unicorn Qualtrics in an $8 billion deal. I caught up with the CEOs of both companies this morning about the deal.
Qualtrics stunned the technology world this weekend by selling itself to German software giant SAP for $8 billion. The company had been working towards an IPO that, by various calculations, could have valued it around $5 billion.
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The arrangement is reminiscent of the 2017 AppDynamics deal when Cisco snapped up the SaaS firm before it could go public. This brought the phrase “dual track” back into tech’s dictionary, the phrase signifying the process by which a company at once works to go public, while also entertaining M&A offers.
Under Smith’s tenure, Qualtrics held off from raising external capital for around a decade after its birth. To see the company go public therefore made sense. After all, an IPO keeps a company independent while providing liquidity to shareholders.
From a prior interview. Your humble servant is on the right, Ryan is in the middle.
Qualtrics’ independent streak makes the SAP deal all the more interesting. According to the company’s CEO, Qualtrics has “always had optionality” due to its growth pace and history of cashflow positivity (a rarity for modern software companies). However, until now, selling out wasn’t sufficiently attractive for the Utah-based firm. (We know that no deal before was good enough, as the firm didn’t sell itself until now.)
And its IPO was shaping up to be a corker, according to Smith, who told Crunchbse News that Qualtrics’ public offering was massively oversubscribed (over 10x), and it was going to end up even more so by the time it went public on Thursday.
That points to a massive first-day share price pop for the firm, had it gone through with its offering. At least if recent public market dynamics held. So why did Qualtrics sell if it could have, I presume, landed damn close to its sale price by going public?
SAP + Qualtrics?
According to SAP’s Bill McDermott and Smith, the deal’s financial result is pretty alright and all, but it’s the product side of things that they are most amped about. I chatted with the pair of them soon after Qualtrics’ employee meeting (which must have been an interesting affair, coming after the deal’s weekend announcement), and while they were willing to talk about the tie-up’s financial elements, they kept jumping back into talking about the future.
So, even though I am no Ron Miller, here’s a shot at what they’re thinking about. In Smith’s view, Qualtrics allows “brands to have a conversation with their people at scale,” figuring out what people think as they do things, such as for example, use a specific product.
That process collects what he calls “x data,” or “experience data.” X data can help companies tell “how your experience” was when doing or using something and how changes could be executed to make things better.
Here’s where SAP comes in. According to Smith, Qualtrics plugs its x data into “o data,” or “operational data,” which is stored in CRM and other sorts of software. SAP, as you have already guessed, has a lot of o data.
So, what might you get if you take Qualtrics’ x data and SAP’s o data together? You get what McDermott calls the “Loyalty Effect,” which, in the crudest business terms, is something that helps you reduce churn. Taking a higher-level look, if you can take feedback (x data), and rapidly use it to impact your operations (o data), you may be able to run a faster, more nimble company.
That seems to be the wager that both Smith and McDermott are making on one another. McDermott and SAP through their checking account, and Smith by selling his company for a price he might have been able to score quickly after going public.
But akin to the United Kingdom and the EU, the companies are — they reckon — better together.
This all trickles back to Utah, where Qualtrics is from and where a number of other large technology companies are hitting stride and even going public. (Crunchbase News reported on Pluralsight and Domo here and here, for more).
I asked Smith about what the $8 billion deal means for Utah, and he responded that his state has an “amazing tech scene,” before going on to argue that the deal wasn’t an exit, really.
“There no exit here,” Smith said, going on to note that he’s “literally fired up” and that Qualtrics is going to keep investing in the state.
McDermott agreed, saying that tens of thousands of jobs could be created in Utah over time thanks to its growing technology industry. Qualtrics is going to need more buildings, he joked. So, I don’t expect SAP to cut Qualtrics up into pieces and ship the jobs around the world, which is good news for its local scene.
To sum: I’ve been on far too many calls with boring and bored CEOs. This one was a bit different. I want to hazard a phrase to the effect of “childlike enthusiasm,” but I worry about unintended negative connotations. So perhaps it’s best just to quote them one more time: Smith and McDermott are “fired up.”