SAP's cloud buy raises bubble fears

 

Did SAP pay too much for SuccessFactors?

SAP's US$3.4 billion takeover of human resources vendor SuccessFactors has been viewed by analysts as an expensive price of being late to the cloud computing game.

The German vendor, which has dragged its heels on offering its business software using the software-as-a-service model, moved on the weekend to acquire U.S. web-based services company SuccessFactors for an agreed $40 per share, a 52 percent premium.

The deal helps SAP catch up with rivals in cloud computing, a fast-growing field where data and processes are hosted remotely on the Web. As part of the transaction, SuccessFactors founder and chief executive Lars Dalgaard will join SAP's executive board and will run its cloud business.

DZ Bank analyst Oliver Finger considers SuccessFactors "a very good strategic fit for SAP in the cloud sector", but the market's response has not been quite as positive.

"This marks implicit recognition by SAP that their cloud strategy is not working," said Evolution Securities analyst Roger Phillips.

SAP shares were down 1.7 percent dropped on Monday, while Germany's blue-chip DAX index was up 1.2 percent. SuccessFactors shares climbed 51 percent to $US39.70, nearly hitting SAP's US$40 offer price.

Analysts had previously warned that SAP risked losing ground to Oracle in the field of cloud-computing. However, there are not many assets in the business available for SAP to buy.

Salesforce.com was seen as too big to acquire, rival Oracle bought RightNow Technologies in October, and NetSuite is majority owned by Oracle CEO Larry Ellison.

"In fact, it is not clear who is next in line behind SuccessFactors. For this reason, despite the apparently rich price tag, we would not rule out the risk of a counter bid," said WestLb analyst Jonathan Crozier.

Heino Ruland, an analyst at Ruland Research, said he sees the acquisition as being way too expensive and said the race for cloud-computing technology was heating up to the point where it seemed market players were spending irrationally just to stay in the game, mirroring the dotcom bubble more than a decade ago.

The price SAP is paying for SuccessFactors represents about eight times forecast 2012 revenues, analysts said, compared with the multiple of about 5.5 that Oracle paid for RightNow.

"The valuation of this deal is high, but reasonable in our opinion, in light of the high-growth, strategic asset that is being acquired," said Nomura analyst Rick Sherlund.

SAP now says it aims to become the world's No. 1 cloud business and plans to get there without more major acquisitions.

"We're going to remain an organic growth company primarily, but where there is an opportunity, a crown jewel in the market like SuccessFactors, and where it can help us become the cloud powerhouse we want to be, you make the move," co-CEO Bill McDermott said on a conference call with analysts and journalists.

SuccessFactors' operating margin jumped to nine percent in the third quarter from zero a year earlier, and the company said it could not hire quickly enough to meet demand.

SAP raised its sales outlook on the deal, saying its revenue could easily reach 21 billion euros by 2015, about a billion euros more than expected. Its 2012 earnings will be hurt by the purchase, but there will be a positive impact from 2013 on.

SuccessFactors, which first went public at US$10 a share four years ago, makes human resources software used by companies to review employee performance.

Shares of Taleo, SuccessFactors' closest rival in the business of offering human resources software over the web, soared 19 percent in Nasdaq trade. The company's chairman and CEO Mike Gregoire noted that the acquisition "reaffirms" the market for cloud-based talent management software, and "takes SuccessFactors out of the competitive equation as a talent management focused player, and leaves Taleo as the only stand-alone SaaS talent management vendor of scale."

JPMorgan Chase advised SAP on the deal, while Morgan Stanley advised SuccessFactors.

(Additional reporting by Brett Winterford in Sydney, Jim Finkle in Boston).


SAP's cloud buy raises bubble fears
 
 
 
Top Stories
Frugality as a service: the Amazon story
Behind the scenes, Amazon Web Services is one lean machine.
 
Negotiating with the cloud email megavendors
[Blog post] Lessons from Woolworths’ mammoth migration.
 
Qld govt to move up to 149k staff onto Office 365
Australia's largest deployment, outside of the universities.
 
 
Sign up to receive iTnews email bulletins
   FOLLOW US...

Latest VideosSee all videos »

The great data centre opportunity on Australia's doorstep
The great data centre opportunity on Australia's doorstep
Scott Noteboom, CEO of LitBit speaking at The Australian Data Centre Strategy Summit 2014 in the Gold Coast, Queensland, Australia. http://bit.ly/1qpxVfV Scott Noteboom is a data centre engineer who led builds for Apple and Yahoo in the earliest days of the cloud, and who now eyes Asia as the next big opportunity. Read more: http://www.itnews.com.au/News/372482,how-do-we-serve-three-billion-new-internet-users.aspx#ixzz2yNLmMG5C
Interview: Karl Maftoum, CIO, ACMA
Interview: Karl Maftoum, CIO, ACMA
To COTS or not to COTS? iTnews asks Karl Maftoum, CIO of the ACMA, at the CIO Strategy Summit.
Susan Sly: What is the Role of the CIO?
Susan Sly: What is the Role of the CIO?
AEMO chief information officer Susan Sly calls for more collaboration among Australia's technology leaders at the CIO Strategy Summit.
Meet the 2014 Finance CIO of the Year
Meet the 2014 Finance CIO of the Year
Credit Union Australia's David Gee awarded Finance CIO of the Year at the iTnews Benchmark Awards.
Meet the 2014 Retail CIO of the Year
Meet the 2014 Retail CIO of the Year
Damon Rees named Retail CIO of the Year at the iTnews Benchmark Awards for his work at Woolworths.
Robyn Elliott named the 2014 Utilities CIO of the Year
Robyn Elliott named the 2014 Utilities CIO of the Year
Acting Foxtel CIO David Marks accepts an iTnews Benchmark Award on behalf of Robyn Elliott.
Meet the 2014 Industrial CIO of the Year
Meet the 2014 Industrial CIO of the Year
Sanjay Mehta named Industrial CIO of the Year at the iTnews Benchmark Awards for his work at ConocoPhillips.
Meet the 2014 Healthcare CIO of the Year
Meet the 2014 Healthcare CIO of the Year
Greg Wells named Healthcare CIO of the Year at the iTnews Benchmark Awards for his work at NSW Health.
Meet the 2014 Education CIO of the Year
Meet the 2014 Education CIO of the Year
William Confalonieri named Healthcare CIO of the Year at the iTnews Benchmark Awards for his work at Deakin University.
Meet the 2014 Government CIO of the Year
Meet the 2014 Government CIO of the Year
David Johnson named Government CIO of the Year at the iTnews Benchmark Awards for his work at the Queensland Police Service.
Q and A: Coalition Broadband Policy
Q and A: Coalition Broadband Policy
Malcolm Turnbull and Tony Abbott discuss the Coalition's broadband policy with the press.
AFP scalps hacker 'leader' inside Australia's IT ranks.
AFP scalps hacker 'leader' inside Australia's IT ranks.
The Australian Federal Police have arrested a Sydney-based IT security professional for hacking a government website.
NBN Petition Delivered To Turnbull's Office
NBN Petition Delivered To Turnbull's Office
UTS CIO: IT teams of the future
UTS CIO: IT teams of the future
UTS CIO Chrissy Burns talks data.
New UTS Building: the IT within
New UTS Building: the IT within
The IT behind tomorrow's universities.
iTnews' NBN Panel
iTnews' NBN Panel
Is your enterprise NBN-ready?
Introducing iTnews Labs
Introducing iTnews Labs
See a timelapse of the iTnews labs being unboxed, set up and switched on! iTnews will produce independent testing of the latest enterprise software to hit the market after installing a purpose-built test lab in Sydney. Watch the installation of two DL380p servers, two HP StoreVirtual 4330 storage arrays and two HP ProCurve 2920 switches.
The True Cost of BYOD
The True Cost of BYOD
iTnews' Brett Winterford gives attendees of the first 'Touch Tomorrow' event in Brisbane a brief look at his research into enterprise mobility. What are the use cases and how can they be quantified? What price should you expect to pay for securing mobile access to corporate applications? What's coming around the corner?
Ghost clouds
Ghost clouds
ACMA chair Chris Chapman says there is uncertainty over whether certain classes of cloud service providers are caught by regulations.
Was the Snowden leak inevitable?
Was the Snowden leak inevitable?
Privacy experts David Vaile (UNSW Cyberspace Law and Policy Centre) and Craig Scroggie (CEO, NextDC) claim they were not surprised by the Snowden leaks about the NSA's PRISM program.
Latest Comments
Polls
Which bank is most likely to suffer an RBS-style meltdown?





   |   View results
ANZ
  21%
 
Bankwest
  9%
 
CommBank
  11%
 
National Australia Bank
  17%
 
Suncorp
  24%
 
Westpac
  19%
TOTAL VOTES: 1455

Vote