SAP hasn't been on the 1B+ acquisition path since 2014, and at the same time is building out its next generation ERP offering with S/4HANA. SAP seemed to be on an organic build out path of capabilities, so the more (or less) was the surprise that SAP stepped back into acquisition mode, acquiring Dublin, CA based CallidusCloud (Callidus going forward here) for 2.4B US$.
DUBLIN, Calif. and WALLDORF, Germany — SAP SE (NYSE: SAP) and Callidus Software Inc. (doing business as CallidusCloud®) (Nasdaq: CALD) today announced that SAP America, Inc. has entered into an agreement to acquire CallidusCloud, the leader in cloud-based Lead to Money (Quote-to-Cash) solutions.
MyPOV - Good summary. Interesting that the acquisition is done by SAP America, not SAP SE… but we have seen that before and I am sure the colleagues with a tie (aka the financial analysts) have a good answer for this.
SAP will assemble the most complete and differentiated portfolio to manage today's customer experience
CallidusCloud's Lead to Money suite for sales combined with SAP's Customer Engagement suite creates leading CRM solution portfolio
MyPOV – The usual bold statements made around an acquisition. SAP is never shy here, but to be fair Callidus gives SAP some options of differentiation around Sales Effectiveness (this is guiding sales people to do the 'right' thing in selecting leads to develop, opportunities to pursue, products to select – all with influencing them via variable compensation – while having some training / gamification assets to educate them on what is 'right'). Not so clear how SAP's Customer Engagement suite (is that SAP Hybris?) combines to that. Callidus has been great to steer sales people to do the 'right' thing, not end users / consumers.
The CallidusCloud board of directors has unanimously approved the transaction. The per share purchase price of $36.00 represents a 21% premium over the 30-day volume weighted average price per share and a 28% premium over CallidusCloud's 90-day volume weighted average price per share. The per share price represents an enterprise value of approximately $2.4 billion. SAP has elected to fund the transaction with existing cash balances and an acquisition term loan. The transaction is expected to close in the second quarter of 2018, subject to approval from CallidusCloud stockholders, clearances by the relevant regulatory authorities, and other customary closing conditions. The transaction is expected to be essentially neutral to SAP's non-IFRS earnings per share for fiscal 2018 and accretive to SAP's non-IFRS earnings per share for fiscal 2019.
MyPOV – Good to see the transparency on the financing… looks like SAP wants to keep some powder dry for more (?) and take advantage of still low interest rates. Interesting in the cloud era that SAP sees now accretive effects in earning starting only in 2019. Maybe the acquisition and onboarding costs are eating those. Again a tidbit to check with the financial analysts.
Reinventing the Front Office
The acquisition gives SAP immediate leadership in the Lead to Money space that includes sales performance management (SPM) and configure-price-quote (CPQ). CallidusCloud offers a full suite of SPM and CPQ solutions, including sales enablement, sales analytics and customer engagement. The combination of SAP's assets with CallidusCloud's will deliver the most complete, end-to-end, fully cloud-based 'Lead-to-Cash' offering. CallidusCloud has been a partner of SAP for several years, based on a joint selling agreement.
MyPOV – Another gutsy statement in regards of reinventing the front office. Interesting SAP does not use the more common CRM, this maybe the start of SAP pushing more again into CRM. Front Office is a good term, but most ERP vendors shied away from it as Back Office isn't terribly appealing. The irony is that Callidus is the Back Office of the Front Office – doing the choreography of sales people. Callidus has an immediate effect on SAP's traditional CRM offering (Is it still Cloud 4 customer?). That's where Callidus comes from and does the bulk of its revenue. Good to notice that both vendors have been partners since a long time. That should accelerate product based integration offerings.
Two Growth Companies, Stronger Together
CallidusCloud is a synergistic addition to SAP's portfolio and significantly strengthens SAP's position in the customer relationship management (CRM) space. CallidusCloud's solutions are tailored to the specific needs of sales people on the ground and link sales-related information, such as pricing, incentives, and commissions, to enterprise resource planning (ERP) systems. CallidusCloud as part of SAP will seamlessly link front and back offices, align sales, compensation and corporate goals, and ensure real-time data flow between the field and finance department.
MyPOV – This is the most realistic and real paragraph of the press release. Yes, its about CRM and Sales Effectiveness – with a heavy slant in regards of variable compensation of sales people (or Incentive Compensation). And variable pay has a wider organizational impact, with a large part of the processing happening in the CFO organization, sometimes even the CHROs (close to payroll).
Statements by the Chief Executive Officers
"SAP is connecting the back office to the front office in this consumer-driven growth revolution," said Bill McDermott, CEO of SAP. "Our customers are focused on reinventing sales, service, marketing, and commerce. The addition of CallidusCloud aligns perfectly to SAP's innovation strategy to transform the front office. SAP gives CallidusCloud the global scale to accelerate its already impressive growth. These two strong companies will be better together, help the world run better and improve people's lives."
MyPOV – Good quote of McDermott. Obviously "Back Office" does not have a bad reputation these days in the eyes of SAP. Stressing the need of reinvention… which SAP badly needs on the CRM front.
"We are super excited to join forces with SAP," said CallidusCloud's CEO Leslie Stretch. "This move gives customers precisely what they want, the market leading Sales Performance (SPM), Sales Execution (CPQ) and Sales Enablement clouds combined with SAP Hybris and S/4HANA. This is true Lead to Money, beyond CRM and beyond Quote-to-Cash. It's the joined-up Front Office and Back Office Cloud everyone needs for 21st Century Business. In addition, the purchase price provides substantial value to our stockholders."
MyPOV – Good quote by Stretch. Might be the last time we hear of "Lead to Money", the Callidus marketing moniker. As with all acquisitions – it will be interesting how the Callidus business will be organized. Past multiple billion acquisitions saw SAP preserve the organization initially (SuccessFactors, Business Objects, Ariba …) – no mention here.
Additional Business Synergies
SAP's S/4HANA business suite in the cloud, SAP Hybris, and Gigya solutions already help businesses deliver new customer experiences, connecting the demand chain to the supply chain. SAP Hybris solutions help companies serve consumers in any channel, on any device. In addition, SAP Hybris's revenue and billing solutions enable companies to monetize new business models. Gigya helps companies secure, protect, and service the consumer's digital identity in the age of data protection and regulation.
MyPOV – Good attempt to paint the big picture and synergies… but as usual these days with SAP – the demarcation lines between S/4HANA and new assets – here SAP Hybris aren't fully clear. Good to see the mention of Gigya, but also not clear how it plays here (customer first party data for Sales Effectiveness – huh? Callidus is about to align employees – not customers / consumers directly).
CallidusCloud, combined with SAP's solution portfolio, also will offer companies powerful tools to enhance sales execution and transform customer engagement. CallidusCloud's portfolio will strengthen existing SAP sales solutions. The portfolio will be enriched with sales planning and forecasting, territory management, and pipeline management. SAP's sales content management will benefit from easy access to contracts, collateral, and learning.
MyPOV – A much fairer paragraph on what Callidus brings to SAP and what the synergies are – mostly on the back office side of the front office.
Additionally, with the Lead to Money suite, CallidusCloud is a leader for cloud-based Quote-to-Cash solutions. This area includes solutions for sales performance management (SPM), sales execution including configure-price-quote (CPQ) applications, sales enablement including learning applications, customer engagement and analytics. CallidusCloud SPM solutions give salespeople instantaneous knowledge of their compensation associated with particular product and pricing configurations and reduce errors in calculating sales commissions and compensation arrangements. CallidusCloud CPQ solutions enable salespeople to identify and configure product packages that have built-in rules for discounts and that can generate proposals for the customers on the spot and during the conversation with the customer. CallidusCloud CPQ solutions also can automatically generate contracts in real time while the salesperson is with the customer. Part of CallidusCloud's offering is a sales-focused and mobile-native learning platform called "Litmos," which shows solid growth.
MyPOV – Good summary of what Callidus can do. Glad there was no link to SuccessFactors (yet) or SAP HCM – as learning platform was mentioned- that could / would create more confusions – though I expect SAP to leverage synergies between the across the Bay neighbours… Learning is crucial to aid enterprises with acceleration.
SAP will follow a strategy of openness that will continue to support integration of CallidusCloud solutions with third-party installations.
MyPOV – Very important statement here – as from my estimate more than 70% of Callidus customers don't use … SAP. But most prominently Callidus partners Oracle and Salesforce. Keeping these customers will be key from a financial ROI for SAP of this acquisition. The next months will be key to keep the confidence of these customers up.
Upon completion of the transaction, SAP expects to consolidate all CallidusCloud product assets within SAP Hybris solutions as part of SAP's Cloud Business Group. The existing management team will continue to lead CallidusCloud. The SAP Cloud Platform is to be used for the technical integration of CallidusCloud solutions.
MyPOV – So the home for Callidus is clear. Part of SAP Hybris, under Atzberger, rolling up to Enslin. Glad to see the SAP Cloud Platform mentioned here – though Callidus has some interesting technology and architecture for SAP overall and SAP CP (e.g. OrientDB, a multi model database, with a graph database origin).
SAP Customer ImplicationsThis is likely going to be good news for SAP customers, who get market leading Sales Effectiveness capabilities. Joint customers are the lucky group, but will have to look at what happens to integration, and should seek re-assurance in regards of old (likely pre SAP Cloud Platform) built integrations. License considerations will also have to be considered. A joint roadmap should be asked for, as well as re-assurance of in flight promised capabilities to be delivered.
Callidus Customer ImplicationsSee above for joint SAP customers. Customers with other ERP back ends will not have to panic, as SAP's record for diverse backends has improved, nonetheless re-assurances in regards of continued operation are key (beyond this press release). Contact your Callidus account manager asap and be visible. Special attention needs to be given to non SAP integration / functionality commitments that they are delivered, and will have the usual support and maintenance timelines. Non SAP customer also need to seek re-assurance on longer term roadmap commitments that are crucial to them.
Partner ImplicationsJoint partners will be the lucky ones, but may have to do some practice consolidations. Their clients need to make sure they keep the professionals they like to work with. Callidus only partners have to make a call if they want to become SAP partners – or focus on the other partners. Callidus and other ERP / Salesforce partners may look for alternatives, depending on how large their business and trust with SAP is.
Competitor ImplicationsOverall CRM / ERP integration will become more important, which is great news for customers, as they operate both CRM and ERP and have often left at integration odds (even with the same vendor for both automation areas). When enterprise vendors have to focus more on Sales Effectiveness, good things happen for enterprises. Likely Oracle will have to ramp up investments, and Salesforce will have to ease integration work needed to integrate with ERP backends. This acquisition will also put pressure on Salesforce to move the best of breed yard stick out further – to justify integration costs any non ERP based offering in CRM has to justify.
Overall MyPOVA good move by SAP, that had to do something to get its CRM business invigorated. Looking at the back office of the front office – which Callidus largely does – is a good move as it allows differentiation towards key competitors Salesforce and Oracle. Moreover, Callidus capabilities align well with synergies next to ERP, of course SAP Hybris, SAP SuccessFactors and even SAP Ariba (Contract creation, next best action etc.). Most importantly for enterprises, it means ERP players (SAP, Oracle) are paying more attention to CRM again, which in recent years has been left largely to Salesforce. More competition and functional differentiation is good for enterprises.
On the concern side, SAP is late to re-invigorate its CRM plans. Salesforce has done a lot of business in the SAP install base in the last years, so likely that needed a reaction. With Atzberger, McDermott has put a talented executive on the job, it will be important to fill out roadmap and more plans through 2018. It's not too late for SAP, but not much time left, going beyond the realization that more than e-Commerce (aka SAP Hybris) are needed to play big in CRM.
Overall good news, customers and prospects now have to await the road maps, which maybe at at Sapphire if all goes well. Stay tuned.