SAP falls after pricey SuccessFactors purchase

Mon Dec 5, 2011 10:46am GMT

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By Maria Sheahan and Harro Ten Wolde

FRANKFURT Dec 5 (Reuters) - Shares of SAP (SAPG.DE) fell on Monday after the German software group announced a $3.4 billion takeover of U.S. web-based services company SuccessFactors SFSF.N over the weekend that some analysts say looks expensive.

SAP shares were down 2.1 percent at 43.78 euros by 1028 GMT, while Germany's blue-chip DAX index .GDAXI was up 1 percent.

SAP said on Saturday it was buying SuccessFactors for an agreed $40 per share, a 52 percent premium. [ID:nL5E7N30E7]

"The acquisition is way too expensive," analyst Heino Ruland of Ruland Research said. "Even if you take into account 2013 yields, the price-to-profit ratio is 165."

The price for SuccessFactors represents about eight times forecast 2012 revenues, analysts said, compared with the multiple of about 5.5 that rival Oracle ORCL.O paid for cloud computing firm RightNow Technologies RNOW.O in October.

Ruland said the race for cloud-computing technology was heating up to the point where it seemed market players were spending irrationally just to stay in the game, resembling aspects of the dotcom bubble more than a decade ago.

The deal helps SAP catch up in cloud computing, a fast-growing field where data and processes are hosted remotely on the Web. Analysts have warned that the German company risked losing ground to Oracle.

"This marks implicit recognition by SAP that their cloud strategy is not working," Evolution Securities analyst Roger Phillips said, pointing also to SAP's decision to appoint SuccessFactors' chief Lars Dalgaard to run its cloud business.

Other analysts said while SAP was indeed paying a high price for SuccessFactors, it was worth it to compete in the fast-growing cloud-computing business.

"The valuation of this deal is high, but reasonable in our opinion, in light of the high-growth, strategic asset that is being acquired," Nomura analyst Rick Sherlund said.

Citigroup analysts said the price "seems expensive but defendable" given among other strong revenue growth at SuccessFactors and expected revenue synergies from the deal.

SuccessFactors, which first went public at $10 a share four years ago, makes human resources software used by companies to review employee performance. It competes with Taleo Corp TLEO.O and Kenexa Corp KNXA.N. "We believe SuccessFactors could be a very good strategic fit for SAP in the cloud sector and we prefer the decision to grow externally in this booming area," DZ Bank analyst Oliver Finger said.

JPMorgan Chase (JPM.N) advised SAP on the deal, while Morgan Stanley (MS.N) advised SuccessFactors.

(Editing by Erica Billingham)

((maria.sheahan@thomsonreuters.com)(+49 69 7565 1286)(Reuters Messaging: Reuters Messaging: maria.sheahan.thomsonreuters.com@reuters.net)) Keywords: SUCCESSFACTORS SAP/

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