SAP Wants to Sell Its Stake In Qualtrics

The move comes as SAP refocuses on its core cloud business

SAP Wants to Sell Its Stake In Qualtrics
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Published: January 26, 2023

Charlie Mitchell

SAP is exploring the opportunity to sell its 71 percent stake in Qualtrics.

After initially acquiring Qualtrics for $8BN in 2018, SAP spun the software provider off into an IPO little more than two years later.

While Qualtrics performed well at that time, as a separate solution, the combined SAP-Qualtrics offering seemingly failed to resonate with most customers.

The initial idea was to take Qualtrics’ experience data (X data) and combine it with SAP’s operational data (O data) to give businesses a holistic view of how customers and employees feel about them.

In 2018, former SAP CEO Bill McDermott shared this idea with CNBC: “We – fundamentally – wanted a transformational deal, one that would reshape the entire industry. And here we are.”

Yet, this vision never quite came to be. And, when Christian Klein took the CEO hot seat in April 2020, his reported mission was to refocus SAP back to its core business.

Years later, this mission has not changed – as the sale of SAP Litmos in August also suggests.

Now, it seems SAP is doubling down on its mission, lessening the focus on its “side projects” and bidding a fond farewell to Qualtrics once and for all.

“This potential transaction could unlock significant value for both companies and their shareholders,” noted SAP in its quarterly statement.

For SAP, these benefits include an increased focus on its “core cloud growth and profitability.” Meanwhile, Qualtrics will aim to “extend its leadership in the XM category that it pioneered.”

The statement continued:

In the event of a successful transaction, SAP intends to remain a go-to-market and technology partner, servicing its joint customers and contributing to its growth and category leadership.

Morgan Stanley will act as a financial advisor for the business as it looks for a buyer.

Where Did It Go Wrong for SAP and Qualtrics?

After completing the acquisition in 2018, SAP had likely hoped that Qualtrics would boost sales of SAP C/4HANA.

Indeed, the probable plan was to overlay Qualtrics onto its CRM software, which would prove a significant differentiator and enable its “X and O” data strategy.

Yet, the vast majority of Qualtrics’ customer base used – and still does use – Salesforce. So, Qualtrics could not stop working with the CRM leader. Otherwise, its revenues would have plummeted.

SAP could have forced it to, but much of its investment would have been lost.

So, SAP had to allow Qualtrics to keep working closely with Salesforce – which perhaps defeated the point of the acquisition.

After all, customers could say: “I can already use Salesforce and Qualtrics, so what is the value-add of using SAP and Qualtrics?

Why Has SAP Chosen to Move On Now?

Despite SAP’s initial plans not coming to fruition, Qualtrics has increased its revenues by 3.5x since the acquisition. It now generates approximately $1.5BN in annual revenue. As such, SAP likely considered it a somewhat worthwhile side hustle.

So, why sell now? Some suggest it’s because Qualtrics’ stock has declined by 75 percent this year.

However, in 2022, such a slump proved almost the norm across the CX tech world. Meanwhile, Qualtrics remains a market leader in the VoC space alongside Medallia.

Instead, SAP’s reinvigorated determination to reduce its focus and consolidate is likely the primary cause.

Unfortunately, this drive to consolidate also spilled over into job cuts, with SAP announcing plans to lay off 3,000 employees.

These layoffs – which will impact 2.5 percent of the SAP team – aim to help the vendor refocus on its cloud business, as opposed to projects that detract from this.

As previously noted, SAP also hopes to increase its profitability, predicting cost savings in 2023 that will significantly heighten in 2024.

Such moves are far from unusual across the CX industry, with Microsoft, Google, and Amazon all making similar announcements.

Elsewhere, SAP surpassed analyst expectations in its Q4 earnings, with its cloud revenues growing by 33 percent YoY. The continued success of S/4HANA – its market-leading cloud ERP solution – played a pivotal role in this, which was up 101 percent.




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