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Germany's SAP keeping pace in cloud-computing market

The largest maker of business-management software agrees to buy San Mateo-based SuccessFactors Inc. for $3.4 billion.

December 04, 2011|Bloomberg News

Germany's SAP, the largest maker of business-management software, agreed to buy SuccessFactors Inc. of San Mateo, Calif., for $3.4 billion in cash to keep pace with archrival Oracle Corp. in the cloud-computing market.

SAP is paying $40 a share for SuccessFactors, which makes software used to manage employee performance — 52% more than the closing price in New York trading Friday, SAP said.

SAP is promoting cloud computing, which lets clients rent software delivered over the Web rather than install it on their own machines, as a safe way to outsource data centers and reduce the need for hardware. The deal comes six weeks after Oracle, based in Redwood Shores, Calif., agreed to buy RightNow Technologies Inc. for $1.5 billion.

The global market for cloud services may surge to $148.8 billion in 2014 from $68.3 billion in 2010, according to researcher Gartner Inc.

Other big makers of cloud software include Salesforce.com Inc. Companies such as Amazon.com Inc. and Dell Inc. operate servers on which the on-demand software runs.

"This is a direct message to Oracle and Salesforce that SAP is clearly not going to be left behind in the cloud," Gartner Inc. analyst Donald Feinberg said. "Organic growth is becoming increasingly difficult for companies like SAP, Oracle, IBM, and this is definitely a major push in that direction."

SuccessFactors was founded in 2001 and has more than 3,500 customers with more than 15 million subscribers in 168 countries, according to its website. The company is predicted to have revenue of $332 million this year, according to analysts in a Bloomberg survey.

"We saw Oracle buy RightNow Technologies just a couple of weeks ago at 5.5 times that company's next-year revenue, and SAP is going to pay almost eight times 2012 revenue," said Brendan Barnicle, an analyst at Pacific Crest Securities. "But these guys are growing much faster than other people in software on demand; this is a marvelous addition for SAP."

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