SAP to take Qualtrics public in biggest IPO in the state's history

By John Rogers

In November 2018, the German multinational software giant SAP bought Utah’s Qualtrics for $8 billion — the largest acquisition ever in the state at the time. Now SAP has announced plans to take Qualtrics public in what will likely be the largest initial public offering (IPO) Utah has ever seen.

Qualtrics, a home-grown experience management (XM) company, had filed to go public just weeks before the SAP acquisition in 2018. SAP bought the Provo company just four days before the IPO was to launch.

Now SAP thinks an IPO is the way forward for Qualtrics. SAP’s primary objective for the IPO is “to fortify Qualtrics’ ability to capture its full market potential within experience management,” a July 27 release from SAP said. “This will help to increase Qualtrics’ autonomy and enable it to expand its footprint both within SAP’s customer base and beyond.”

The IPO is not expected to have an impact on SAP’s 2020 or “longer-term” financial targets because it plans to maintain majority control, according to the announcement. Qualtrics co-founder (along with his brother and father) and CEO Ryan Smith is expected to be Qualtrics’ largest individual shareholder, the document said. Smith and the current management team of Qualtrics will continue to operate the company.

The release gave no indication as to the timing of the planned IPO other than it “is pending and subject to market conditions.”

SAP, headquartered in Walldorf, Germany, with a U.S. base in the Denver area, is sometimes known by its original name, Systems, Applications, and Products in Data Processing. It makes enterprise software to manage business operations and customer relations and employs over 84,000 in its worldwide footprint. Qualtrics accounts for about 3,200 of that number.

“SAP’s acquisition of Qualtrics has been a great success and has outperformed our expectations with 2019 cloud growth in excess of 40 percent, demonstrating very strong performance in the current setup,” SAP CEO Christian Klein said. “As Ryan Smith, Zig Serafin and I worked together, we decided that an IPO would provide the greatest opportunity for Qualtrics to grow the experience management category, serve its customers, explore its own acquisition strategy and continue building the best talent.”

Qualtrics, which is part of SAP’s cloud portfolio, has operated with greater autonomy than other companies SAP had previously acquired, Klein said.

Qualtrics introduced its flagship XM Platform software package in 2017. Qualtrics takes credit for popularizing the XM category. The software provides tools that help companies find the gaps between the services they provide to their customers and services they should be providing. XM Platform collects and analyzes data to help companies improve advertising, prioritize features, predict market trends and monitor a customer and employee experience.

“When we launched the experience management category, our goal was always to help as many organizations as possible leverage the XM Platform as a system of action,” said Smith. “SAP is an incredible partner with unprecedented global reach, and we couldn’t be more excited about continuing the partnership. This will allow us to continue building out the XM ecosystem across a broad array of partners.”

According to an analysis of the pending IPO by Forbes magazine, Qualtrics and SAP will hope that an IPO can offer each company the best of both worlds: Qualtrics’ software bolstering SAP business units and its financials through strong market performance, with Qualtrics benefitting from SAP’s customer base while having more independence to attract and compensate talent, make its own acquisitions, and pursue customers and partners outside the SAP ecosystem.

One challenge, Forbes said, will be in the execution — not just of a IPO itself, but in how each party will handle the relationship. Addressing those concerns might be the cause of a separate statement Qualtrics issued from Smith on the day the deal was announced: “It’s rare to have the leadership team of an acquired company remain intact almost two years post acquisition,” the Qualtrics’ CEO said. “It demonstrates the strength of SAP/Qualtrics partnership.”

For its part, SAP also made it a point to emphasize the strength of the relationship. “SAP is fully committed to experience management and the Qualtrics XM Platform as a key element of its intelligent enterprise strategy. SAP will remain Qualtrics’ closest and most important co-innovation and go-to-market partner.”