Where Does Qualtrics Fit for SAP?

SAP SE (SAP) is acquiring Qualtrics International for $8.0 billion. If all goes according to plan, the transaction is expected to close in the first quarter of 2019.

Qualtrics is a market analytics company that provides technology to help companies gauge customer sentiments. Qualtrics has attracted more than 9,000 clients, including more than 75% of Fortune 100 companies. Its clients include big names such as Microsoft (MSFT), which made $110.4 billion in revenue in fiscal 2018 (which ended in June), and General Electric (GE), which made $122.1 billion in revenue in 2017.

SAP is betting on Qualtrics to bolster its CRM (customer relationship management) business. The CRM software market is growing faster than SAP’s core enterprise resource planning market. According to Gartner, CRM became the largest software market in 2017 with $39.5 billion in annual revenue.

In Qualtrics, SAP is buying a business that has already generated a good amount of revenue. Qualtrics is expecting nearly $400 million in revenue in 2018.

SAP generated ~$26.5 billion in revenue in 2017. Its revenue in the first nine months of 2018 reached ~$19.5 billion, including $6.8 billion in the third quarter.

SAP joins the list of major software companies that have recently announced large acquisitions as they seek to sharpen their competitive edges in crucial markets. Microsoft has agreed to buy GitHub for $7.5 billion, and IBM Corporation (IBM) has agreed to acquire Red Hat (RHT) for $34 billion.