SAP Plans to Spin Off Qualtrics Appears to be Smart Financial Engineering

The News: SAP said Sunday that it would sell some shares of its Qualtrics survey-software unit on a U.S. public market. The announcement comes less than two years after SAP announced a plan to buy Qualtrics for $8 billion, days before Qualtrics was set to go public as an independent company.

The move represents a change in direction for the German enterprise-software company not long after its leader for the past several years, Bill McDermott, left. Qualtrics was SAP’s largest acquisition to date, according to FactSet.

Analyst Take: In what seems to be a quick turn of events from the original decision to acquire Qualtrics, the company has announced to take it public again. 

This isn’t an exit per-se, but it is a deviation from the original plan to grow and nurture Qualtrics as a product under the SAP header. This brings some interesting questions, but we have seen the company change CEOs one and a half times since this acquisition and there has been a major global pandemic, both of which has steered many businesses in a new direction. 

This news came to me as somewhat of a surprise, but the more I thought about it, the more it occurred to me that this may be a really wise piece of financial engineering to raise some capital while leveraging one of the more exciting businesses within SAP’s control. 

Overall Impressions of the Spin-Off of Qualtrics

SAP made a big bet and took on a lot of debt in the pursuit of Qualtrics. The company was on a path to go public and SAP definitely strayed from its traditional cautious ways when making such a large acquisition, but with a big vision in mind. 

For SAP, this isn’t the end of Qualtrics and its commitment to customer experience, but rather a financial engineering move that would reduce the company’s debt load and possibly see the company profit substantially as the largest shareholder after the company splits off. 

In some ways, this reminds me of what Michael Dell is doing with VMware. Despite the fact that Dell holds 81% of the stock, the company’s market cap doesn’t fully account for it. If Dell winds up spinning off VMware, the company will see a significant return versus the somewhat muted valuation that is being included into its market cap.

For SAP and Qualtrics it could be the same. SAP is a steady company, and its numbers are good and its growth is excitingly unexciting. Qualtrics has more of that startup feel. $8 Billion could easily become 2 or 4 or 8 times that in the market if the company operated and traded independently. 

I believe CEO Christian Klein and the SAP Board of Directors can see that and are looking at this as an opportunity to cash-in on the relatively low price paid for Qualtrics.

Futurum Research provides industry research and analysis. These columns are for educational purposes only and should not be considered in any way investment advice.

Read more analysis from Futurum Research:

IBM Kicks Off Tech Earnings With A Strong Q2 Result

Oracle Cloud Volunteer Screening Registry is a Key Part of the NIH’s COVID-19 Prevention Network

Microsoft Outperforms For Its Fiscal Q4 Showing Tech Resiliency

Image Credit: SAP

Author Information

Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.

From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.

A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.

An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.

SHARE:

Latest Insights:

Deal Doubles HPE’s Networking Business While Positioning the Company for AI, Datacenter, and Cybersecurity Market Opportunities
Fernando Montenegro, Vice President and Practice Lead, Cybersecurity & Resilience at Futurum, analyzes HPE's acquisition of Juniper Networks, combining comprehensive networking portfolios across enterprise and service provider markets.
Andy Palmer, Director of Technology at AWS, joins us to reveal how strategic collaborations and custom silicon are defining the future of enterprise AI.
Strengthened Partnership with Samsung Foundry Yields Major Advances in HBM3, EDA Flows, and IP on SF2 and SF2P Nodes
Ray Wang, Research Director at Futurum, shares his insights on Synopsys and Samsung’s expanded collaboration to fast-track AI and multi-die chip design using certified flows, advanced packaging, and a robust portfolio of silicon IP.
Ray Wang, Research Director with The Futurum Group shares his insights on Micron’s Q3 earnings and company’s strong performance amid record-high DRAM and data center revenue.

Book a Demo

Thank you, we received your request, a member of our team will be in contact with you.