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News crossed the wire over the weekend that SAP AG subsidiary SAP America Inc. entered into a merger agreement with cloud-based human capital management services provider SuccessFactors in a deal that some analysts say moves SAP’s once-lagging cloud strategy to the industry forefront.
SAP said in a release Saturday it would offer to acquire all outstanding shares of common stock of SuccessFactors for $40 per share in cash, representing an enterprise value of roughly $3.4 billion.
Paul Hamerman of Forrester Research said in a blog post after hearing of the terms of the deal that SAP is paying a substantial premium to acquire SuccessFactors, adding that the deal price of $40 per share is a 52 percent premium over the Dec. 2 stock closing price.
Hamerman had this to add in his blog post:
“SAP’s cloud strategy has been struggling with time-to-market issues, and its core on-premise HR management software has been at competitive disadvantage with best-of-breed solutions in areas such as employee performance, succession planning and learning management. By acquiring SuccessFactors, SAP puts itself into a much stronger competitive position in human resources applications and reaffirms its commitment to software-as-a-service as a key business model.”
In a phone interview early Monday morning, Hamerman said the move is likely an attempt to keep up with competitors like Oracle and Workday whose cloud strategies have generated better business in recent quarters.
“SAP was not executing on its cloud strategy,” Hamerman said, adding that the company’s revenue in the area has remained generally flat over the last several quarters.
The SuccessFactor acquisition, which won’t become official until after the start of 2012, should catapult SAP from near the middle of the pack on its cloud-based strategy into the leadership ranks, largely because SuccessFactors had been one of the top vendors in the performance management space.
Lisa Rowan, program director, HR and talent management services at research firm IDC, added to the sentiment that SAP was looking to more aggressively push its cloud strategy with the acquisition. “I think it really surprised everybody,” she said in a phone interview Monday.
What remains unclear, Rowan said, is how SAP will carry out its overall product strategy until the deal becomes official. “We just aren’t going to know a lot about [SAP's] road map until after the acquisition closes,” she said.
SuccessFactors’ shares jumped more than 50 percent in trading Monday, to $39.71, after the merger was announced, according to a MarketWatch report early Monday.
The deal also triggered further speculation if other merger deals involving companies that offer business-software applications through the Web are on the horizon, the MarketWatch report said.
The MarketWatch report also said the deal highlights the increased competition among software giants to build heftier cloud computing capabilities.
A spokesman for SAP largely reiterated what the company said in its press release, adding that SAP is looking to introduce its cloud capabilities to the market on a larger scale.
Frank Kalman is an associate editor of Talent Management magazine. He is a graduate of Northwestern University’s Medill School of Journalism, where he earned his master’s of science degree in Dec. 2010. He is also a graduate of Indiana University Bloomington, earning a degree in American history in May 2009. Prior to joining MediaTec, Frank served as an editorial intern for Crain’s Chicago Business, covering commercial and residential real estate for Crain’s real estate spinoff, ChicagoRealEstateDaily. He also covered public finance and commercial banking while a reporter at Medill. Frank can be reached at fkalman@TalentMGT.com.