SAP says its Qualtrics unit will go public

Key Points
  • The Qualtrics deal happened under SAP's previous leader, Bill McDermott, who has since become ServiceNow CEO.
  • Qualtrics gives SAP cloud revenue growth as it has sought to diversify away from licenses and support.
Qualtrics Chairman Ryan Smith

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.

Christian Klein, SAP's CEO, said in a statement that the acquisition has been successful and that a share sale could SAP expand Qualtrics' overall market, where it competes with SurveyMonkey. SAP did not provide a date for the share sale.

Klein became co-CEO of SAP in October alongside Jennifer Morgan. The two replaced McDermott, who became CEO of ServiceNow after leading SAP since 2010. Morgan stepped down from her post in April, leaving Klein as sole CEO.

Under McDermott, SAP made large deals that expanded its capabilities. It bought SuccessFactors, Concur and Ariba in addition to Qualtrics.

Qualtrics filed to go public in October 2018, revealing that in the second quarter it had generated $975,000 in income on $97 million in revenue. Three weeks later SAP said it said it had agreed to buy Qualtrics.

In the second quarter of this year Qualtrics contributed to SAP's cloud growth, according to SAP's preliminary results. Revenue from cloud services diversifies SAP away from software license and support revenue. SAP's enterprise software peers IBM, Microsoft and Oracle have also become more focused on cloud products in recent years.

SAP will be Qualtrics' biggest shareholder and doesn't intend to spin off the holding, according to the statement. The two companies will continue to work together after the initial public offering, SAP said. Qualtrics' leaders, including Founder Ryan Smith, will continue to run Qualtrics.

"We believe that many SAP investors do not fully understand Qualtrics or its vision for the future and this would probably help at least as it relates to better understanding its value," Mark Moerdler and Firoz Valliji of Bernstein Research, who have the equivalent of a buy rating on SAP stock, wrote in a note distributed to clients on Sunday. 

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