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Why is SAP spinning Qualtrics out via an IPO?

Over the weekend, software giant SAP announced that it will take Qualtrics public, with the German software company retaining a majority stake in the Utah-based “experience management” firm after its forthcoming debut.

SAP paid $8 billion in cash for Qualtrics back in 2018, right before the smaller firm was set to go public. Chatting with the CEOs of both companies around the time of the deal, they were pretty pumped about the combination. Since then, SAP has swapped CEOs.

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At the time, the deal not only made waves within the business realm, it also helped put Utah’s startup scene on the map. (An $8 billion deal makes an impact.)

Current commentary on the spin-out idea seems to rotate on the idea of unlocking value, that if SAP can float a good chunk of Qualtrics’ shares, the market may give that equity a good price. And, then, the value of Qualtrics that SAP will retain will gain implicit value, perhaps boosting the value of its own shares. Making the point, CNBC quoted analysts from Bernstein Research, which said it believes “many SAP investors do not fully understand Qualtrics,” and that the spin-out might “help at least as it relates to better understanding its value.”

What is Qualtrics worth? If we can understand that, we’ll know if the current commentary regarding the spin-out makes sense. So this morning, let’s remind ourselves how big Qualtrics was heading into its IPO, what it might have been worth, how much it has have grown since and what that might be worth at today’s super-high software valuations.

Did SAP overpay? Did it get a deal? Let’s find out what Qualtrics might look like in 2020.

2018

Before SAP stole it from the public markets, Qualtrics was looking for $18 to $21 per share on the public markets, valuing the company at around $3.9 billion to $4.5 billion. SAP had to pay up for Qualtrics stock, obviously, to get the deal done given how hot the Utah-based firm was at the time.

Qualtrics had growth and profits, two things that combine to create lots and lots of market value. Here are some key Qualtrics numbers from the time:

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