Add another acquisition to this week’s hot IT provider marketplace. SAP America has announced that it is acquiring Callidus Software, providers of the CallidusCloud software platform for human resource, sales, “lead-to-money” (quote-to-cash), marketing, and customer experience solutions. Shareholders of publicly-traded Callidus are expected to receive $36 per share - a 10 percent premium over Monday’s trading close price of $32.70. SAP will fund the $2.4B transaction with existing cash and an acquisition term loan.
The deal is interesting not because of its size or direct revenue impact on SAP – even SAP CEO Bill McDermott stated that he doesn’t expect Callidus will “move the needle” on SAP revenues by itself. Nor will the deal make SAP any more of a market leader in HR, CRM, sales or quote-to-cash operations than it already is.
Callidus instead provides SAP with (at least) two very important capabilities it needs to be a player in large-enterprise digital transformation.
The first is better-than-adequate, adaptable, and agile market/customer engagement – the catalyst for most digital business transformation initiatives worldwide. In the words of one SAP customer, “Now they have a front end to go with their back end.” SAP has long influenced, if not dominated, back-office, enterprise transaction+operations/process management software built in and around core business systems, including business networks between firms (a la SAP Ariba). But lacking a digital engagement platform has prevented SAP from developing the digital transformation presence and revenue it sorely needs to stay relevant. In digital transformation, the front office leads the back office.
The second capability SAP gains from Callidus is access to a tremendous amount of business data, many types of which it did not previously have. Callidus really began as a sales management application and evolved organically and through acquisition to its current engagement-to-cash platform state. With 5800 customers and a decade-plus history of sales, marketing, and order management, Callidus brings mountains of compelling data into the SAP family circle.
Obviously, SAP gains more than this – including an improved ability to streamline its own engagement-to-cash, CRM, and associated processes. CEO McDermott specifically mentioned a combination of internal streamlining and margin improvement as expected outcomes from the acquisition.
One other important aspect to note is that Callidus will also help pull SAP more fully into being a cloud-first software and services provider. The company has been its own journey to cloud and digital transformation for more than a decade; its 2011, $3.4B acquisition of cloud-native HR solution provider SuccessFactors was widely seen as “a watershed event that both catalyzed and accelerated SAP’s cloud strategy and transformation. But like most other large, complex firms, especially providers of IT software and services, SAP has learned that the path to cloud is long, winding, and replete with obstacles. McDermott acknowledged indirectly this Tuesday, saying that SuccessFactors would be fully migrated to SAP’s cloud platform some time in 2018, adding that “This year, the entire company will be on one platform.”
We don’t mean to imply that SAP is lagging in its own transition. Once integrated, Callidus should help SAP reach its FY2020 goal of having “predictable” – i.e., subscription-based, cloud-enabled - revenues comprising 70 to 75 percent of SAP’s total annual revenue. The company reported that such revenues accounted for 63 percent of total revenues for fiscal 2017 – a relatively rapid, massive turnaround for a very traditional, on-premises-model enterprise software provider.
In his role as leader of ISG Insights’ overall research agenda, Bruce Guptill coordinates analysts’ focus on guidance regarding digital disruption, emerging technologies, market shifts and the changing value of enterprise IT for clients’ changing business needs. His own analysis and guidance focus on how disruptive technologies enable business innovation and improvement for enterprise clients, and how these in turn disrupt and reshape software and IT services providers’ business and markets.