Following reports that SAS Institute was seeking a buyer, the longtime independent analytics vendor has unveiled plans to prepare for an initial public offering.
The Wall Street Journal initially reported last month, and TechTarget independently confirmed, that SAS was in talks to get acquired by Broadcom, a $24 billion conglomerate that has been a designer and supplier of semiconductors since its inception as a division of Hewlett-Packard in 1961, for between $15 billion and $20 billion.
Just a day later, however, those talks broke off and James Goodnight, co-founder and CEO of SAS -- who is widely referred to as Dr. Goodnight due to his Ph.D. in mathematics -- sent an email to all employees insisting SAS was not for sale.
Now, however, it appears SAS, founded in 1976 when it was part of North Carolina State University and based in Cary, N.C., has chosen a different course of action; rather than seek a buyer, it is planning an initial public offering (IPO).
"Today, we are announcing our intention to be ready for an initial public offering by 2024," Goodnight said in a video.
Assuming SAS, indeed, goes public, it will likely raise more than the $15 billion to $20 billion it would have attracted with an acquisition by Broadcom.
Boris EvelsonPrincipal analyst, Forrester Research
With revenues steady around $3 billion in recent years, the vendor could fetch nearly double what it would have from an acquisition, according to R "Ray" Wang, founder, chairman and principal analyst at Constellation Research.
"It's way, way early, but … I think they'll do better than $15 billion in the IPO," he said. "Discounting for the fact that they were slower to get to the cloud and they have an older user base, they should be in the $27 billion to $30 billion range if you look at comps in the market."
Previously, Wang had speculated that the talks with Broadcom, which would have valued SAS at between five times its 2020 total revenue of about $3 billion and slightly less than seven times total revenue, was just a ruse to attract another potential buyer such as Microsoft, with whom SAS has a deep existing partnership.
IPO vs. acquisition
An IPO is a more preferable next step for SAS than getting acquired because it would enable the vendor to remain intact and in control of its own destiny, said SAS spokeswoman Shannon Heath.
"Dr. Goodnight's biggest concern is that the company continues to thrive and move into the future together, not broken up, separated or merged in with some other organization," she said. "We've got an incredible brand and it needs to stand on its own."
Similarly, analysts said an IPO would be preferable because it would allow SAS to maintain its current culture, as well as keep its identity unchanged.
"An IPO makes so much more sense than an acquisition," said Boris Evelson, principal analyst at Forrester Research. "SAS has been a private company for 45 years, so changing corporate culture due to [mergers and acquisitions] would be challenging. An IPO would leave the company culture as is. SAS is [also] a very well known, popular brand name, and an IPO assures that the brand name lives on."
Evelson added that the integration of SAS' products with those of another vendor would be complex, and an IPO would avoid that complication.
"SAS offers a very broad range of products, solutions and professional services," he said. "Integrating these into an existing business, especially with overlapping products, solutions and services, will be challenging, consuming time and effort. An IPO allows most SAS employees to concentrate on products and customers, and not be distracted with post-merger integration."
Similarly, Kjell Carlsson, also a principal analyst at Forrester, said an IPO is the better route for SAS.
"An IPO is better for everyone -- customers and employees," he said.
An IPO does not, however, address one significant problem for SAS, which is who will succeed Goodnight -- now 78 years old -- as CEO.
Oliver Schabenberger, who was COO and CTO in his final years at SAS before leaving to become chief innovation officer at SingleStore in early 2021, had been viewed as a potential successor.
With Schabenberger gone, however, there is no obvious candidate, according to Carlsson.
"An IPO doesn't solve SAS' leadership succession problem, which could have been a key driver for the Broadcom discussions," he said. "[New CTO] Bryan Harris has the background to guide SAS on its cloud strategy, but he isn't the applied statistics/data science leader that [Schabenberger] was, and [Goodnight] is."
In addition, an IPO could limit any future CEO's ability to make significant strategic changes, Carlsson continued.
"An IPO also limits the flexibility of future leadership to take SAS in a dramatically different direction, since [Goodnight] will almost certainly continue to exert an outsized role in the company's decisions," he said. "Presumably, this is one of the causes that led to [Schabenberger's] departure."
Wang noted that an IPO is preferable to getting acquired because it would leave SAS' leadership intact.
In addition, he said it's unlikely SAS would seek a buyer in the interim, before its eventual IPO, which would likely come at a time when valuations for tech firms are at an all-time high.
"There's no point in doing this if you're not serious about an IPO," Wang said. "There's a lot of unlocked value."
Prep for going public
If SAS follows through and goes public, preparations need to be made, the vendor said.
Among them, SAS needs to refine its financial reporting structure, streamline some of its operational processes and enhance its focus on the aspects of its analytics platform in which there's growth potential.
Just over two years ago, SAS revealed plans to invest $1 billion in augmented intelligence capabilities to help modernize its platform. Since then, among other AI investments, it has used portions of that investment to add automated machine learning and improved natural language processing and computer vision capabilities.
Most recently, after unveiling its enhanced product and marketing partnership with Microsoft last year, SAS unveiled cloud-native support for its analytics platform in AWS and Google Cloud in May 2021.