Quickly Unpacking SAP’s $8B Acquisition Of Qualtrics

Qualtrics recently filed to go public. Last night, SAP bought the company before it could IPO.

There are plenty of well-deserved articles by Axios and Forbes and tweets of praise for Qualtrics (must read Utah-based VC Bryce Roberts’ storm here), which you can and should read.

By all accounts, the Utah-HQ’d company did everything the right way, was an overnight success 16 years in the making, and only raised venture capital as a growth company after years of bootstrapping. In the wake of what is now considered the second-highest enterprise SaaS acquisition in history, below are some quick takeaways that are on my mind:

1/ The Efficiency Of Silicon Slopes – By now it should be no surprise that Utah’s tech ecosystem is on fire. In fact, it feels like old news, even a year after a this New York Times feature on the region. What’s also interesting to me here is not just how little venture dollars many of these companies have raised, but further, the ratio of enterprise value with respect to dollars raised. It speaks to a mentality we see less of in the Bay Area today, but one that nearly everyone admires and wishes would come back.

2/ The Pricing Pressure Of Going Public – Not to suggest Qualtrics was under any pressure whatsoever (it was not), but the pressure of preparing for IPO forces a company’s share price to fall within an acceptable range on the day of IPO. We’ve seen now a few large companies wait until that moment of pricing pressure to swoop in and snipe their targets, most recently with Cisco and AppDynamics. The behavior is logical: Private market valuations have felt, on the whole, dislocated from revenue multiples and public markets, so a larger acquirer has many incentives to wait to get as close to the market price for an asset before making a bid. Of course, SAP or others could’ve made a run at Qualtrics earlier, and who knows – maybe folks had tried and failed.

3/ The Price Of Incumbency – It seems like at the end of every year I’ve been an investor, various blog posts will prognosticate on whether the following year will truly be the year when incumbents start getting nervous and spend their cash reserves and high-priced stock on a big splashy acquisition. And, every year, it doesn’t materialize that way. Instead, we’ve seen a few massive buys, like Whatsapp, or more recently, RedHat. Elad Gil, the founder of Color Genomics and widely considered one of the most-connected angel investors in the Bay Area tweeted after the Qualtrics announcement, “Feels like we just turned a corner on BigTechCo M&A and lots of activity for the next 6 months as companies rethink the strategic playing board. IBM & Redhat, MSFT & Github, SAP & Qualtrics – probably lots more large acquisitions to come….” Gil is one of the few who tend to be more right than wrong, and if that holds up, it will be very good news for up-and-coming enterprise software category leaders.

4/ The Product Is The Message – I’ll end with a few notes on the importance of product in the case of Qualtrics. By all accounts, Qualtrics’ product was able to grow over the years to serving many thousands of customers and extend its product corpus into far-reaching corners of those customers. SAP’s CEO commented: “We are chasing the biggest prize in the world: to be the undisputed leader in the most exciting category I’ve seen in my career, called experience management.” Qualtrics could help SAP expand into CRM offerings. Qualtrics focuses on experience data, SAP focuses on operational data. With SAP’s global reach, merging experience-level data with SAP’s own data sets across other enterprise verticals is in line with the giant’s behavior in M&A. Tweeted VC Villi Iltchev, “This acquisition is completely consistent with prior SAP deals where you buy the leader and not worry about price (Ariba, SuccessFactors, Concur and now Q).”