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SAP is acquiring Qualtrics for $8 billion, snapping up the survey software company just before its planned IPO.
The all-cash deal has been approved by the boards of both companies and by Qualtrics shareholders, SAP said in a statement on Sunday.
Qualtrics competes with SurveyMonkey, which went public in September. Qualtrics is bigger and growing faster than SurveyMonkey and is also more profitable.
SAP has been counting on new cloud products for growth as the transition away from traditional desktop software has taken business from its core enterprise resource planning business. In October, the German software company raised its outlook following a 41 percent jump in third-quarter cloud revenue. SAP said it now expects revenue growth of 7.5 percent to 8.5 percent this year, up from the prior range of 6 to 7.5 percent.
The deal is SAP's second-biggest acquisition ever, following the $8.3 billion purchase of travel and expense software company Concur in 2014. To build its cloud business, SAP acquired SuccessFactors in 2011 for $3.4 billion, and earlier this year purchased Callidus for sales performance management at a price of $2.4 billion.
Qualtrics is the latest software company to get acquired just before its planned IPO. Cisco bought AppDynamics in 2017 right before its debut, and Workday bought Adaptive Insights earlier this year prior to an IPO.
It also marks another blockbuster software deal and comes just two weeks after IBM announced plans to buy Red Hat for $34 billion, the industry's biggest ever acquisition. Earlier this year, Microsoft bought GitHub for $7.5 billion and Salesforce paid $6.5 billion for MuleSoft.
J.P. Morgan Chase advised SAP on the deal. Qatalyst Partners, Frank Quattrone's firm, advised Qualtrics even though Goldman Sachs and Morgan Stanley were the listed lead banks for the IPO. Goldman and Morgan Stanley did not know about the sale, according to a person familiar with the matter, who asked not to be named because the discussions were private.
Based on investor demand, the Qualtrics IPO was 13 times oversubscribed, a person familiar with the offering said.
Qualtrics gets most of its sales from subscriptions and also generates revenue from a research on demand option that existing customers can use to get feedback from "a curated group of respondents," and from professional services.
In the first half of 2018, Qualtrics recorded revenue growth of 41.7 percent to $184.2 million. By contrast, SurveyMonkey had $121.2 million in revenue during that same period, up 14 percent. After generating a profit in 2017, Qualtrics reported a $3.4 million net loss for the first six months of this year.
Qualtrics was founded in 2002 by brothers Ryan and Jared Smith and their dad, Scott, along with Stuart Orgill, who resigned from the board last year. The company had 1,915 employees as of Sept. 30, and is based in Provo, Utah.
Ryan Smith, the company's CEO, was reluctant to do the deal. He went back and forth on the sale, leaving SAP unsure if it would get done until Sunday, according to a person familiar with the matter. While the $8 billion price had been agreed to weeks ago, Smith struggled with the idea of losing control of the company he founded, said the person. The Smiths owned 48 percent of total voting control, according to the IPO prospectus.
When it comes to money, Qualtrics has always steered clear of Silicon Valley norms. The company didn't raise venture funding for its first decade in business, choosing instead to bootstrap, running its operations on revenue and staying lean with expenses. In a 2016 column for Fortune, Ryan Smith wrote that, "Working with limited resources compels focus and fine-tunes problem solving."
Based on the stockholders section of the prospectus, the Smiths will make about $3.3 billion from the deal. Venture firm Accel's shares are worth about $1.5 billion, followed by $1.35 billion for Insight Venture Partners and $910 million for Sequoia.
Qualtrics has more than 9,000 customers, including BlackRock, Kellogg, Microsoft, Mastercard and Under Armour. In addition to SurveyMonkey, Qualtrics said its competitors include Aon Hewitt, Medallia and Willis Towers Watson.
-- CNBC's Ari Levy and Jordan Novet contributed to this report.