Breakingviews-SAP fixes e-commerce weakness at hubristic price

Thu Jun 6, 2013 8:09pm IST

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(Adds Context News) (The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Olaf Storbeck

LONDON, June 6 (Reuters Breakingviews) - If you can't make it, buy it. Europe's largest software maker SAP (SAPG.DE) has been following this principle with the vigour of a late convert. The German company ditched its longstanding penchant for organic growth only a few years ago. Since then, it has been buying, spending about $9 billion on acquisitions, about 10 percent of its current market capitalisation, in the last 18 months.

So far, the deals have made strategic sense, mainly strengthening SAP's market position in cloud computing. The prices are another matter. This week's acquisition of Hybris, a privately held Swiss peer, confirms both patterns.

Hybris offers a new generation of customer relationship management software (CRM). It sells to such industry leaders as Procter & Gamble (PG.N), Nespresso and Levi's. Hybris’ core strength is the ability to provide a similar customer experience on all distribution channels, from smartphones to websites.

The acquisition will cover up a hole in the SAP line. Parts of its existing CRM software rank poorly with industry experts such as Forrester Research, and have been losing ground. According to research by consultants Gartner, SAP lost the top position in CRM to Salesforce.com (CRM.N). That matters in an $18 billion global market that grew by 12.5 percent last year.

SAP isn’t saying, but Reuters cites sources putting the price at $1 billion or above. That would be a sky-high valuation, at least 10 times annual revenue of about $110 million. Starmine data show the average sales multiple for listed software companies is 3.5. Just this week IBM (IBM.N) and Salesforce.com bought cloud computing companies at sales multiples between 5 and 9.

SAP can point out that Hybris' revenue nearly doubled in 2012 and that other bidders were interested. In any case, now it must integrate the acquisition and retain key staff. SAP has not been particularly good at the latter, having lost the founders of Sybase and SuccessFactors, two major recent acquisitions.

It looks like SAP has shown something like hubris - overbearing arrogance - in the price it was willing to pay for Hybris. It will take something more like humility to make the deal work.

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CONTEXT NEWS

- European business software maker SAP has bought Swiss software developer Hybris to expand its customer management platform, both companies announced on June 6 without giving financial details.

- Two sources familiar with the matter told Reuters that SAP paid at least $1 billion for the company.

- Hybris was founded in 1997 and is based in Zug, Switzerland. It specialises in e-commerce software for customer relationship management via different digital distribution channels.

- In 2012, Hybris generated sales of around $110 million and has about 500 customers worldwide. SAP last year spent almost $8 billion on acquisitions, buying the cloud computing firms SucessFactors and Ariba.

- Reuters: SAP to buy Swiss firm hybris to boost cloud services [ID:nL1N0EH2B5]

(Editing by Edward Hadas and Sarah Bailey)

((olaf.storbeck@thomsonreuters.com)) Keywords: BREAKINGVIEWS SAP/

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