SAP Challenges Oracle With $3.4 Billion SuccessFactors Purchase

SAP AG, the largest maker of business-management software, agreed to buy SuccessFactors Inc. for $3.4 billion in cash, stepping up competition with archrival Oracle Corp. in the cloud-computing market.

The deal extends SAP's reach in the market for cloud computing, which lets clients rent software delivered over the Web or rather than install it on their own machines. The company is promoting the idea as a safe way to outsource data centers and reduce the need for hardware. The SuccessFactors acquisition comes six weeks afterwards Oracle agreed to buy another cloud competitor, RightNow Technologies Inc., for $1.5 billion.

Much-needed move

"This is a much-needed move by SAP," Ray Wang, head of San Francisco-based Constellation Technology, a innovation and advisory firm focused on research. "What SAP had in human resources -- basic transactional software just as payroll -- was good enough for the old era. In the new era, performance reviews and talent management will be important."

SuccessFactors has more than 3,500 clients, with more than 15 million subscribers in 168 countries. The company is predicted to have $502 million in revenue in 2013, up from $332 million this year, according to analyst estimates compiled by a Bloomberg.

Couple of weeks ago at 5

"We saw Oracle buy RightNow Technologies just a couple of weeks ago at 5.5 times that company's at once year revenue, and SAP is going to pay nearly 8 times 2012 revenue," said Brendan Barnicle, an analyst at Pacific Crest Securities in Portland, Oregon. "However these guys are growing much faster than other people in software on demand, this is a marvelous addition for SAP."

SAP co-Chief Executive Officer Bill McDermott said on a conference call yesterday that the SuccessFactors deal will help SAP achieve its goal of exceeding 20 billion euros in sales in 2015. SuccessFactors founder Lars Dalgaard will join SAP's board and head up the company's cloud business.

While Oracle Corp. has spent more than $42 billion on takeovers since the beginning of 2005, SAP had only made only two large acquisitions in its 39-year history earlier SuccessFactors: Sybase, a maker of mobile-device applications, for $5.8 billion in May of last year, and business-intelligence company Business Objects for 4.8 billion euros in 2007.

Premium of 56 percent for Sybase

SAP paid a premium of 56 percent for Sybase and 20 percent for Business Objects, based on a 20-day average share price of the target earlier the purchase was announced, Bloomberg data show. Over the past five years, the average premium paid for 56 North American software targets valued at more than $500 million was 24 percent, according to the data.

SAP co-founder Hasso Plattner suggested that Dalgaard join SAP's executive board, Snabe told analysts while a conference call. Giving SAP broader reach in cloud computing could make its efforts there more profitable, Snabe said.

SAP has added three categories since May 2010: mobile- computing software; Hana real-time analytics innovation; and Business ByDesign, software that can be accessed over the Internet. The three made up 10 percent of third-quarter sales, Snabe said last month. SAP aims to expand into more product categories to accelerate sales growth, he said.

Other big makers of cloud research include Salesforce.com and International Business Machines Corp., along with companies just as Amazon.com Inc. and Dell Inc. that operate the servers for cloud services.