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SAP will do small 'tuck-in' acquisitions, not mega deals, CEO Bill McDermott says

  • Investors should not expect the German software company to engage in big deals in the near future, McDermott told CNBC.
  • In January, SAP announced a deal to buy CallidusCloud for $2.4 billion. It was the first large acquisition for German firm since it bought Concur in 2014 for $7.3 billion.
  • McDermott explained that margins would rise in 2018 because heavy investment, such as opening data centers, is behind the company.

Software giant SAP will likely do smaller "tuck-in" acquisitions, but investors should not expect big deals in the near future, CEO Bill McDermott told CNBC on Monday.

In January, SAP announced a deal to buy CallidusCloud for $2.4 billion. It was the first large acquisition for the German firm since it bought expense management platform Concur in 2014 for $7.3 billion.

But as SAP continues to push its cloud business, which is seen as a large future driver of growth for the company, large acquisitions are not in the pipeline, McDermott said.

"Our growth is primarily organic. You know we hadn't done an acquisition of size and scale in more than three years. This particular acquisition (CallidusCloud) I would consider a tuck-in based on its size," McDermott said Monday at the World Government Summit in Dubai.

"Will we do some more tuck-ins? Probably. But they will be small in nature, not enough to move the needle. Do not expect SAP to do big M&A (mergers and acquisitions), that's not on the horizon."

SAP reported fourth-quarter non-International Financial Reporting Standards (IFRS) operating profit that rose by 6 percent in constant currency terms to 2.37 billion euros ($2.93 billion) for 2017, slightly missing expectations.

But McDermott said cloud bookings surged 31 percent in the fourth quarter of 2017. The SAP CEO also signaled in January that margins would rise.

McDermott explained that most of the heavy investment, such as opening data centers, is behind the company now, which should help margins this year.

"The heavy opening up of cloud data centers etcetera is largely behind us and if we did so in a small market it wouldn't be big enough to move the needle for a company our size and scale," he said.

"You should really expect the margins to bend now, the revenue to continue to grow strong in the cloud, and our core business is the only one in our industry that continues to grow while others are declining and that's because our software is the best."