SAP intends to go public with Qualtrics

SAP intends to remain the majority shareholder of Qualtrics. The IPO has as its primary objective to strengthen Qualtrics and thus to better exploit the full market potential of Experience Management. This greater independence should enable Qualtrics to grow successfully within SAP's customer base and far beyond.

"SAP's acquisition of Qualtrics has been a great success, exceeding all expectations with cloud revenue growth of over 40 percent in 2019. This demonstrates the outstanding capability of the current setup.", said Christian Klein, spokesman for SAP's Executive Board.

In the second quarter of 2020, Qualtrics segment revenues grew 34 percent year-over-year to €168 million (up 32 percent in constant currency). Etsy, Blue Cross and Blue Shield of Alabama, Kendra Scott Design, Tableau and other companies selected Qualtrics in the second quarter.

Furthermore, Klein explains: "Together, we have concluded that an IPO offers the best opportunity for Qualtrics to further accelerate the growth of the Experience Management category, operate closer to customers, pursue its own acquisition strategy and continue to be attractive to the best talent.

SAP will remain Qualtrics' largest and most important go-to-market and development partner even after an IPO. At the same time, Qualtrics will gain greater independence to build its own ecosystem for experience management through partnerships."

As part of SAP's cloud portfolio, Qualtrics has operated far more independently than previously acquired companies from SAP. Founder Ryan Smith and the current management team will continue to lead Qualtrics. But what about integration with SAP's core systems?

Christian Klein assures: "There is no downside as we will continue to embed Qualtrics into our Intelligent Enterprise strategy. As part of our product strategy, in addition to Human Experience Management, we have come up with four other categories that we will launch in the next few quarters, and we will also sell them together. So there's no change with the partial IPO."

Ryan Smith, founder and CEO of Qualtrics, also affirms: "If anything, it intensifies our partnership. SAP has really done a phenomenal job of keeping the founders and original team of Qualtrics here, which makes all of this possible."

SAP currently holds 100 percent of the shares in Qualtrics. There is no intention to spin off or otherwise dispose of this majority stake. Ryan Smith intends to become his company's largest single shareholder. SAP remains Qualtrics' closest and most important innovation as well as go-to-market partner.

A final decision on the IPO, terms and timing is still pending and depends on the market environment.

During an analyst webcast on the half-year and second-quarter 2020 results, CFO Luka Mucic emphasized: "In terms of the scale of the IPO, frankly, we don't really know yet. I mean, if you look at the benchmark that's typical for U.S. tech IPOs - it's hovering at a rate of somewhere between ten and 15, maybe a notch above that.

And we won't be miles away from that. So it's clear that SAP will continue to hold the clear majority of the shares after the IPO. In terms of how we use the proceeds, we have two main goals here. First, we want to make sure that Qualtrics is well capitalized so that they can pursue their investment plans and properly exploit the opportunities that are available in the market.

But of course we also expect that once this purpose has been fulfilled, proceeds will flow to SAP. And we will use these proceeds to further our own strategic growth priorities, whether organically or perhaps also through selective M&A activities. And as far as the timing of a listing, that's really something we can't comment on at this point."

SAP will continue to fully consolidate Qualtrics as majority shareholder. Therefore, no impact of the transaction on SAP's financial targets for 2020 or beyond is expected.