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SAP buys lead-to-money leader CallidusCloud to take on Salesforce

SAP paid $2.4 billion to acquire lead-to-money vendor CallidusCloud, and analysts agree that the significant price may be worth it in an effort to compete with Salesforce.

Long known as the behemoth of the back office, SAP now appears to want to throw its significant weight -- and dollars...

-- around the front office as well.

The latest sign of this is SAP's acquisition of CallidusCloud, a leading vendor of cloud-based lead-to-money software based in Dublin, Calif. The deal, which was announced in January by both companies, has SAP buying CallidusCloud for $36 per share, or approximately $2.4 billion in per share value.

CallidusCloud makes a suite of cloud lead-to-money applications, including sales performance management (SPM) and configure-price-quote (CPQ). CallidusCloud has been a longtime SAP partner, and SAP is a CallidusCloud customer, running its applications internally, the company said.

Beyond a press release, SAP would not comment on the acquisition, but the company appears to be targeting the front-end side of business.

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

Building a better cloud customer experience

Although the price SAP paid for the lead-to-money vendor raised a few eyebrows, experts agree that the move is generally positive for the company.

It certainly looks like SAP is gearing up to take on Salesforce, Oracle and others in the front-office CRM and CPQ space, according to Cindy Zhou, vice president and principal analyst at Constellation Research.

"SAP has been investing in building a comprehensive cloud customer experience (CX) suite the past few years to better compete with companies such as Salesforce, Oracle and Infor," Zhou said. "Digital transformation projects are often led by executives on the business side versus IT and this acquisition further strengthens SAP's direct-to-revenue value proposition."

Zhou said CPQ and SPM applications are becoming more prominent as companies realize the importance of guided sales activity in winning deals. She noted that CallidusCloud's CPQ and SPM applications with sales enablement, sales analytics and customer engagement functions address gaps in SAP's CX portfolio.

SAP also appears to be trying to keep up in a very active market, Zhou said.

"There were several transactions in the space over the past several years, starting with Oracle buying Big Machines [in 2013]and Salesforce purchasing SteelBrick [in 2014], and over the past year we saw Xactly acquired by Vista Equity for $564 million and Apttus receiving an investment from IBM," Zhou said. "So the sales technology space is a hot area of investment, and with several CPQ and SPM provider deals in motion, CallidusCloud's offering rounds out SAP's solution with no overlap and gives them access to a new group of customers for cross-sell opportunities."

Pricey acquisition, but likely worth it

As Salesforce rose to dominate the CRM market, SAP was more focused on S/4HANA and its acquisitions of companies like SuccessFactors and Ariba, but that appears to be changing, according to Kelsey Mason, analyst at Technology Business Research (TBR), a research firm based in Hampton, N.H.

"During the SAP earnings call [when the CallidusCloud deal was announced on Jan. 30, 2018] Bill McDermott said something to the effect that CRM competitors had had it too easy and [that SAP was here] to take that market back, and that sets the stage for how intensely they're going at it," Mason said. "SAP acquired Gigya a few months ago to help with Hybris marketing and e-commerce, and now this is filling in another gap in CRM that they need to fill in order to attack that market and go after Salesforce in earnest."

This is filling in another gap in CRM that [SAP] need[s] to fill in order to attack that market and go after Salesforce in earnest.
Kelsey Masonanalyst, Technology Business Research

The $2.4 billion price tag for CallidusCloud seems a bit hefty, Mason said, but understandable given the competitive landscape.

"If they're trying to go after Salesforce then they need to pay a bit of a premium to get top-of-the-line functionality to fill whatever gaps they have and really take them on," she said. "Salesforce acquired SteelBrick in 2014, and they talk a lot about the growth and traction they've had in CPQ since that acquisition, and I think SAP saw that and said 'That's where their growth is coming from, and we don't really have that.'"

CallidusCloud lead-to-money leads the pack

The $2.4 billion is in line with CallidusCloud's overall value, according to John Bruno, Forrester analyst, who cited the company's 2017 revenue of $250 million, with revenue growth of 22%.

"They've consistently seen growth numbers like that, so the outlook is positive, but what's more important is how they achieve this," Bruno said. "CallidusCloud has arguably the most complete portfolio of sales-focused applications. The CallidusCloud acquisition is bigger than CPQ, as there are a whole host of applications. They've seen strong growth with their lead-to-money suite of applications and incentive compensation, but outside of that you've seen really strong progress with their Litmos learning management system."

Bruno also noted that CallidusCloud helps make SAP competitive in a market where it had little to offer previously, with an offering like SAP Cloud for Customer having scant appeal outside of the existing SAP base. CallidusCloud allows SAP to "deliver a fairly comprehensive CRM experience, at least on the sales side," Bruno said.

"Prior to the acquisition we've seen Salesforce and Oracle make strategic acquisitions around their sales products and we've seen Oracle and Microsoft start to make a more concerted effort to create an ISV ecosystem much like Salesforce's AppExchange," he said. "SAP has been very quiet on this front and their hand was forced -- they either had to do something to become more competitive or simply decrease investment in their CRM offerings. This was in no uncertain terms a very good acquisition for SAP."

Integration with SAP Leonardo will help CallidusCloud

CallidusCloud's lead-to-money applications will also benefit from integration with advanced technologies like machine learning and AI in SAP Leonardo, Mason said.

"I'm sure SAP will bring the SAP Leonardo advanced technologies into it down the road because that's what Salesforce is doing with Einstein," she said. "SAP is still really trying to build out the capabilities of Leonardo and have customers build those capabilities into their own solutions, and I know that they've done a lot with putting machine learning capabilities into SuccessFactors, so I think they're working their way down the line in terms of the cloud applications that they'll build those into and if they're taking on the CRM market seriously, then Hybris may become a greater priority."

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