SAP America is buying SuccessFactors and its SaaS-based human capital management expertise for $3.4 billion in cash. That $40-per-share price represents a 52 percent premium over SuccessFactors’ $26.25 closing price on December 2.
This shouldn’t be surprising for a few reasons. For one thing, SAP co-CEO Jim Hageman Snabe told reporters last month that the company was on the hunt for acquisitions to help it enter new arenas and get more consumer friendly. SAP also needs to bolster its cloud credibility and at that time, several analysts predicted it would buy more software-as-a-service (SaaS) expertise. SAP’s Business ByDesign SaaS offering has not lived up to expectations.
Secondly, the trend has been for legacy software players to buy vertically-focused SaaS providers. SAP rival Oracle bought RightNow Technologies for $1.5 billion in late October. But these old-line software companies must also compete with established SaaS vendors that are also looking to buy vertical expertise to bolster their existing services portfolio. Salesforce.com, the granddaddy of all SaaS players, bought Model Metrics, a social computing and mobility specialist, also in October.
Business customers including Comcast, Avnet, and Kimberly-Clark use SuccessFactors services to manage employee recruitment, compensation, training and to perform workforce analytics. That sort of human resources capability will help SAP compete better with arch-rival Oracle, which bought human resources leader PeopleSoft years ago.
In new research, Martin Wolf of Martin Wolf M&A Advisors, found that over the last few years, the market valuations of SaaS companies grew twice as much as the valuations of traditional software companies. And, he predicted that the trend will continue for the next two years, and that the SaaS players with the most vertical focus would be the most highly valued and aggressively courted.
Forrester Research analyst Liz Herbert came to similar conclusions in a SaaS report published last week.
Lars Dalgaard, founder and CEO of SuccessFactors, will head SAP’s cloud business. The San Mateo, CA.-based company will become “SuccessFactors, an SAP company” and operate independently, according to the SAP statement.