In an important move, today SAP AG (NYSE:SAP) announced its intended $3.4B acquisition of SuccessFactors (NYSE:SFSF) as it seeks to accelerate its Cloud Strategy and become a dominant player in the Human Capital Management space.
Event: SAP America, Inc., a subsidiary of Germany-based SAP AG, has entered into a definitive agreement to acquire SuccessFactors for approximately $3.4 billion, the deal being comprised of SAP’s acquisition of all outstanding shares of SuccessFactors’ common stock for $40.00 per share in cash. The transaction is expected to close in the first quarter of 2012. Founder and CEO of SuccessFactors Lars Dalgaard to remain onboard and expand responsibilities to encompass the SAP Cloud business.
Analysis: Unlike the hostile takeover of PeopleSoft by Oracle back in 2004, the merging of these two powerhouse organizations, SuccessFactors with SAP, is an amicable event, with Lars continuing to operate SuccessFactors as an independent entity (“SuccessFactors, a SAP company”) as well as taking over responsibility for SAP’s Cloud business. With this move, SAP reaffirms its commitment to the Cloud computing model while also solidifying its commitment to delivering solutions to address the most critical assets of an organization: its people. Said Bill McDermott, Co-CEO SAP, in today’s press release, “The acquisition will help us address the top priority for CEOs globally – managing people and talent.”
The benefits of the acquisition from the perspective of delivering globally applicable Human Capital Management (HCM) offerings to organizations of any size are tremendous:
- SAP has struggled with market-lagging learning and talent management solutions and delayed delivery of viable SaaS-based HCM. The acquisition enables SAP’s HCM customers (more than 15,000 deployments, actual customers are fewer) to more readily access the strength of the SuccessFactors offerings, which include the industry’s most well-adopted employee performance management solution on the market. The integration is already proven between the on-premise SAP Human Resources platform and the could-based SuccessFactors talent management capabilities, as evidenced by the many organizations whom today are joint customers of both.
- Learning and development is critical in any people management strategy, and now SAP customers will benefit from the comprehensive learning management (LMS) capabilities of SuccessFactors (gained through the Plateau acquisition). The SuccessFactors LMS has proven scalability to meet the needs of SAP’s large enterprise global customer base and mid-market customers alike, as well as delivering the social learning capabilities required by today’s mobile, virtual, multi-general workforce.
- SuccessFactors today has a robust offering for business insight and workforce intelligence, as bolstered by their acquisition of Inform in 2010. The SAP acquisition will further extend their market advantage by making available the SAP’s powerhouse Business Objects solutions, used by many leading talent management vendors today for comprehensive workforce intelligence and analytics.
- SuccessFactors also brings to the deal a comprehensive social collaboration platform, with the benefits of driving employee engagement, connections and knowledge sharing beyond traditional HR processes. SAP recently showcased their planned 2012 delivery of a social-enabled Career Development application, but their delivery of next-generation HCM solutions is already late to market and likely competitive at best. With the SuccessFactors acquisition, SAP has a proven competitive social HCM solution to bring to bear on its sizeable install base, as well as to the HCM market at large, which itself is actively embracing social talent management offerings.
The collaborative nature of this acquisition bodes well for SAP and SuccessFactors customers, so far. Questions remain as to what will happen to the planned roadmaps on both sides, the speed with which SuccessFactors solutions will benefit from SAP’s assets such as Business Objects and extensive mobile platform, how SAP will effectively deliver SaaS-based HR and Payroll for its SuccessFactors clients, and whether or not SAP will maintain the levels of innovation and investment shown by SuccessFactors over the years. Another important yet perhaps less obvious risk is that of the two competing cultures. Lars Dalgaard has built a culture at SuccessFactors that is dramatically different from the German-sensibilities-driven culture permeating all of SAP, even SAP Americas, Inc. Whether or not the differences can be withstood remains to be seen.
The merging of SAP, the clear #1 leader in global payroll and HR solutions (by customers and global solution availability), and SuccessFactors, the touted #1 talent management suite, certainly serves to validate the Workday model of SaaS-based ERP. It also means there is a new and formidable competitor in the SaaS HCM market that can deliver end-to-end capabilities across the people technology spectrum. Other SaaS vendors such as Workday, Taleo, Cornerstone OnDemand, Saba, Ultimate, SilkRoad and others who still have gaps in their comprehensive HCM technology suite will want to consider acquisitions for innovation and suite completion while they themselves remain targets for acquisition from other behemoths such as ADP and Oracle.
Action: For buyers of HCM technologies, the SAP/SuccessFactors HCM offering will be compelling option for companies of almost any size, delivering not just HCM capabilities but also integration with other business systems of SAP to bring greater business value to your HCM investment. While the strategy you adopt in response to this acquisition must reflect the unique circumstances of your organization, some immediate actions and opportunities are clear:
- Merger announcements such as this will typically stall contract negotiations or result in customer turnover, and as such, current SuccessFactors customers and their prospective clients may find themselves at unique negotiating advantage with SuccessFactors for the next few months.
- SAP HR/Payroll customers who have not deployed SAP Talent Management modules may want to consider the SuccessFactors suite for solution competitiveness as well as the long-term benefits of single-vendor support
- SAP customers who have deployed SAP talent and/or learning management modules will want to seek clarification on roadmap investments in that product line and continue to monitor the integration plans between the SAP and SuccessFactors solutions.
At Constellation Research, we are here to help customers by providing an assessment framework for evaluating the risks and opportunities for your organization stemming from this announcement. We will continue monitoring this transaction and go deeper in our analysis in the coming weeks, providing perspectives and actionable insights from across the team. An additional assessment of this acquisition has already been posted by my colleague Ray Wang. Meanwhile, send us your thoughts, feedback and questions and we’ll continue the dialogue.