SAP Strikes $2.4 Billion Deal To Acquire Sales Performance Software Developer Callidus, Plans Front-Office Application Push

Software giant SAP will acquire sales performance application developer Callidus Software Inc. for $2.4 billion and will offer the Callidus application set as part of a new comprehensive suite of cloud front-office applications.

The acquisition of quote-to-cash (also called "lead-to-money") software vendor Callidus (doing business as CallidusCloud) will pitch SAP into tighter competition with cloud CRM rival Salesforce.com.

The announcement came Tuesday as SAP announced its fourth-quarter and 2017 financial results, including 26 percent year-over-year growth in cloud subscription and support revenue for the entire year.

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"SAP is connecting the back office to the front office in this consumer-driven growth revolution," said SAP CEO Bill McDermott in a statement.

"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," McDermott said.

CallidusCloud's directors have approved SAP's $36 per-share offer to acquire the company, up from the stock's $32.70 closing price on Monday and a 21 percent premium over the 30-day volume weighted average share price. Subject to regulatory approvals, the companies hope to complete the acquisition this quarter.

SAP and Callidus have had a joint-selling agreement for several years.

SAP said the acquisition would strengthen its existing sales software portfolio and "is a synergistic addition to SAP's portfolio and significantly strengthens SAP's position in the customer relationship management space."

The acquisition gives it "immediate leadership in the lead-to-money space," which includes sales performance management and configure-price-quote applications, the company said. Callidus' applications also include sales enablement, sales analytics and customer engagement capabilities.

The applications also provide sales professionals with links to back-end ERP systems such as SAP's flagship S/4HANA application set.

Once the acquisition is completed SAP will consolidate all CallidusCloud product assets with its Hybris ecommerce and omni-channel applications as part of SAP's Cloud Business Group. The SAP Cloud Platform will be used for the technical integration of CallidusCloud software and the existing management team will continue to lead CallidusCloud, SAP said.

SAP has made a number of significant acquisitions of cloud software companies, including acquiring talent management application developer SuccessFactors in 2012 for $3.4 billion, procurement network vendor Ariba in 2012 for $4.3 billion, and travel expense management software vendor Concur Technologies in 2014 for $8.3 billion. But the company has been relatively quiet on the acquisition front in recent years.

The acquisitions have certainly added to SAP's momentum in cloud software, which was evident in its fourth-quarter and 2017 financial results, in which cloud subscription and support revenue grew 26 percent and 20 percent, respectively.

SAP also reported strong growth in sales of its flagship S/4HANA application suite, with the number of customers adopting the product growing to 7,900 by year's end – up 46 percent from one year earlier. But slowing sales among the vendor's legacy software products pulled down overall revenue growth for both the fourth quarter and the year.

"This company is firing on all cylinders," McDermott said during an earnings call Tuesday morning. "On top of an outstanding 2017, we are moving forward with great confidence."

"We now target approximately 25 billion [Euros] in total revenue in 2018 including continued fast growth of around 30 percent in the cloud even at larger scale," McDermott said. He also noted that in 2018 SAP's cloud revenue is expected to overtake license revenue for the first time.

For the fourth quarter ended Dec. 31 SAP reported total revenue of 6.81 billion Euros (U.S. $8.45 billion), up 1 percent from 6.72 billion Euros (U.S. $8.35) in the fourth quarter of 2016. After-tax profit for the quarter was 1.87 billion Euros (U.S. $2.32 billion), up 22 percent from 1.53 billion Euros (U.S. $1.89 billion) one year earlier.

That included cloud subscription and support revenue of 955 million Euros (U.S. $1.18 billion), up 20 percent from 827 million Euros (U.S. $1.03 billion) one year earlier.

But revenue from traditional software license sales and support was down 2 percent in the fourth quarter to 4.81 billion Euros (U.S. $5.97 billion) from 4.93 billion Euros (U.S. $6.12 billion) in the same quarter one year earlier.

For the year ended Dec. 31 SAP reported total revenue of 23.46 billion Euros (U.S. $29.10 billion), up 6 percent from 22.06 billion Euros (U.S. $27.37 billion) in 2016. After-tax profit for the year was 4.06 billion Euros (U.S. $5.03 billion), up 12 percent from 3.63 billion Euros (U.S. $4.17 billion) in 2016.

That included cloud subscription and support revenue of 3.77 billion Euros (U.S. $4.67 billion) for all of 2017, up 26 percent from 2.99 billion Euros (U.S. $3.71 billion) one year earlier.

Revenue from traditional software license sales and support was up only 2 percent in 2017 to 15.78 billion Euros (U.S. $19.57 billion) from 15.43 billion Euros (U.S. $19.14 billion) in 2016.

For 2018 SAP is forecasting cloud and support revenue in the range of 4.8 billion Euros to 5.0 billion Euros (U.S. $5.95 billion to $6.20 billion), representing 27 to 33 percent growth at constant currencies. Total revenue for 2018 is expected to hit 24.6 billion to 25.1 billion Euros (U.S. $30.52 billion to $31.12) representing 5 to 7 percent growth at constant currencies.