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SAP Buys SuccessFactors for $3.4 Billion

The acquisition is indicative of the emerging trend to the cloud

SAP, which hasn't been able to get much cloud traction on its own, said Saturday that it's buying SuccessFactors and its web-based software for $3.4 billion.

The $40-a-share cash offer amounts to a hungry 52% premium or 16.5 times SuccessFactors' $205.9 million revenue last year.

Pretty sweet for a little 10-year-old company that's lost more than $40 million so far this year on revenue up 59%. Last year it lost $12.5 million. Its stock closed at $26.25 Friday although it's ranged between $19.46 and $40.44 in the last 52 weeks.

The acquisition is indicative of the emerging trend to the cloud and SAP's great rival Oracle, which used to be pretty snooty about the cloud, is feeling the same pressures. In October it said it would put some of its traditional programs in the cloud and then, as a catch-up, agreed to pay $1.4 billion for online CRM house RightNow Technologies.

"The cloud is a core of SAP's future growth," SAP co-CEO Bill McDermott said Saturday. "The combination of SAP and SuccessFactors will create a cloud powerhouse."

SAP said it would run SuccessFactors, which sells so-called "business execution" software - on-demand employee performance review and relationship stuff also called human capital management (HCM) - as a standalone operation under its own name.

Its founder and CEO Lars Dalgaard will run SAP's cloud business while managing SuccessFactors at the same time. He is expected to be named to SAP's executive board.

Dalgaard, who's got to deal with the combination's many architectures, reckons SAP's involvement and installed base of 176,000 customers - including 15,000 conventional HCM deployments - will accelerate his roadmap by 10 years.

SuccessFactors was expected to do $330 million this year, $400 million next year. Now it hopes to piggyback on SAP's Business Suite, Business All-in-One and Business One as well as SAP's Business ByDesign - its slow-selling in-house attempt at the cloud.

After four years SAP is still working on its first thousand customers for ByDesign, a goal it might attain by New Year's.

SAP also expects to get mileage out of SuccessFactors' mobile applications combined with the mobility of its Sybase acquisition and expects SuccessFactors' BI to fit in with its own business analytics platform.

SuccessFactors figures that at 15 million subscription seats it operates the largest scale of paying cloud users. That works out to some 3,500 customers in 168 countries. It said its revenue was up 77% last quarter.

Customers include AMD, Comcast, BlackRock and reportedly some ex-SAP accounts impatient with the German company's traditional handling of HCM.

The deal should close in the first quarter of 2012 and SAP expects the acquisition to be slightly dilutive in 2012, accretive thereafter. SAP will be using cash on hand and a billion-euro loan facility to pay for the acquisition.

Having SuccessFactors on board is supposed to tickle SAP's projected growth. It has forecast revenues of €20 billion ($26.8 billion) by 2015, up from €12.5 billion last year. That estimate should be now be exceeded, SAP said, while holding to its 35% margin promise.

SuccessFactors is headquartered in San Mateo, California, and has 1,450 employees.

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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