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Two years after acquiring Qualtrics for $8 billion, SAP is spinning off the experience management vendor in an IPO.
The Qualtrics IPO will offer common Class A stock for an anticipated price of $20 to $24 per share, according to Monday's filing with the Securities and Exchange Commission. The per-share price values the company between $12 and $14.4 billion.
The news is not a surprise, as the intention of a Qualtrics IPO was first announced in July. Analysts said then that an IPO was a promising move for both companies and a signal that newly anointed SAP CEO Christian Klein was focusing on the company's roots.
The IPO filing reports that Qualtrics, which makes software that measures and analyzes customer and employee sentiment about products and services, is in a healthy state with revenues of $550 million in the first nine months of 2020, a 31% increase over the same period of 2019. SAP will retain a controlling stake in Qualtrics following the IPO by holding 100% of Class B stock.
Qualtrics will be listed on the Nasdaq exchange under the ticker symbol "XM" for experience management. Morgan Stanley and JP Morgan Chase & Co. are the lead underwriters for the IPO.
A win for both companies
SAP acquired Qualtrics in November 2018 under Bill McDermott's tenure and just four days before Qualtrics was expected to go public with an IPO. The experience management company, which is co-headquartered in Seattle and Provo, Utah, was founded in 2002 by Scott Smith, Ryan Smith, Jared Smith and Stuart Orgill. Ryan Smith remains with the company as chairman. Zig Serafin is Qualtrics' CEO.
McDermott, who left the company about a year later and is now CEO at ServiceNow, touted the acquisition as a merging of "X" data, or experience data, and "O" data, or the kind of operational data for which SAP is traditionally known.
But questions about the hefty price tag SAP paid have swirled ever since, including how Qualtrics applications would integrate with SAP systems.
The Qualtrics IPO, however, looks like in might benefit both companies, said Predrag Jakovljevic, principal industry analyst at Technology Evaluation Centers, an enterprise industry research and analysis firm in Montreal.
"SAP can recuperate some money while [Qualtrics] XM doesn't get bogged down by SAP's control," Jakovljevic said. "Such point solutions seem to be doing better finding their own integrations and revenues than waiting for SAP to notice them in budgets."
The projected IPO offering share price represents a considerable improvement over the anticipated Qualtrics share price in 2018 when SAP acquired the company, said Joshua Greenbaum, principal at Enterprise Applications Consulting, an enterprise industry consulting firm in Berkeley, Calif.
It appears to have vindicated SAP's decision to acquire Qualtrics, which came a cost that was much criticized, Greenbaum said.
"Qualtrics has turned in some really good numbers, so while I'm not sure anyone envisioned this scenario when the acquisition was being proposed to the [SAP] board, it's a pretty decent outcome," he said. "Like a lot of these big money acquisitions, the synergy was not as fast and effective as it might have been. There was a lot of confusion about what was what and who had responsibility for what, and [while many acquisitions have problems] this is actually one of the better ones."
Still, the integration of Qualtrics' XM capabilities with SAP's core ERP systems has been problematic. It has been well integrated with SAP SuccessFactors, SAP's human capital management (HCM) suite, but has struggled to find a place in the rest of SAP's portfolio, Greenbaum said.
"There was a very easy and quick fit over in SuccessFactors, as the employee experience part was something that Qualtrics was already doing, and this slotted right into the SuccessFactors strategy," he said. "But other than that, there's a certain amount of floundering going on with the company trying to find the ways in which they could fit this square peg into a round hole. It looked a little overdone and a little forced in some cases."
Although there is a role for experience management in enterprise processes like supply chain, integrating the capabilities into these core operations is very complex, according to Greenbaum.
"The problem with having a tool like Qualtrics is that there are a couple of false impressions you get from it," he said. "One is that all you need is a survey to solve your experience problems, which isn't true; and the other is that adding basic, or even advanced, survey research and analytics methodology to complex business processes is not easy at all -- in fact, it's pretty hard."
Making Qualtrics more appealing
The Qualtrics IPO may make the company more appealing to customers, although SAP's controlling interest will help maintain close relations between the companies.
"Because SAP has a majority interest in Qualtrics, it has a preferred partner status for all other apps to integrate based on work done over the last two years," Jakovljevic said. "XM is already used by SuccessFactors and SAP CX, but it can also be integrated with SAP PLM and other PLMs to get customers' input in product design. Propel PLM is doing fine with its Salesforce platform integration, which is proving the trend of using customers to develop your next product and service."
Qualtrics can now be expected to focus investment on areas where it will get the biggest bang for its buck, which is not necessarily in SAP integration, said Luke Marson, president of iXerv Americas, an SAP SuccessFactors consulting partner based in Miami, and a SearchSAP contributor.
"Without being part of SAP, their strategy isn't bound to SAP's strategy, so you can expect a divergence between the two organization's go-forward strategies," Marson said. "I would expect SAP to continue to focus on integration and push the experience economy, which will be particularly relevant in areas like HR, where SAP has rebranded the entire HCM category as human experience management or HXM, based on Qualtrics technology being integrated with SAP SuccessFactors. But integration is a long way off where SAP would like it to be, and the Qualtrics IPO isn't likely going to help achieve closer integration any quicker."
The IPO will benefit Qualtrics by providing it with more speed and flexibility in innovation than it had after being acquired by SAP, said Faith Adams, senior analyst at Forrester Research. However, Qualtrics also benefited from being in the SAP fold.
"On the CX side of the house, Qualtrics integration with other SAP applications has not really been a focal point," Adams said. "I do think Qualtrics benefited from SAP being able to flex some muscle in some sales cycles by helping them win some deals they would have otherwise lost due to it being a part of a much larger deal, which I suspect will continue."
Qualtrics should enjoy more freedom, but this will be limited, according to Greenbaum.
"Because there's majority ownership by SAP, I don't see Qualtrics having the freedom to go and cut a big deal with Workday, for instance, but this certainly gives them a lot more freedom," he said. "The SAP corporate meat grinder can be pretty onerous to navigate, so being able to move a little more freely is something that Qualtrics leadership will enjoy."