Because M&A almost always requires a “forcing function” to finally get done.

Big Companies look to buy a number of companies, especially to fill key gaps (smaller deals) or to catch up where a market has changed and they are behind (bigger deals).

But all M&A almost always seems too expensive to most acquirers. Especially older acquirers like SAP are reluctant to pay a much higher multiple of revenue than they trade for. And the hotter and more successful the “target”, the more expensive it often can seem. And is. E.g., I am sure SAP would have been happy to pay 3x-4x revenues for Qualtrics. Almost 20x (what they paid in the end) is hard to justify … unless …

There is a Forcing Function. A forcing function inherently justifies a price, at least to your board of directors.

The best forcing functions are (x) another offer and/or (y) an IPO. Another offer puts a price on a deal. Google offered $6b for Github apparently, so Microsoft had to pay $7.5b to win the deal. Similarly, Qualtrics was literally about to IPO at $5b-$6b. So to “win” the deal vs. an IPO, SAP had to pay at least 25% more than the IPO price, probably more. $8b sounds about right.

SAP clearly wanted to buy Qualtrics for a long time, to try to help fix its huge gaps in Cloud. But it always probably seemed just a bit too expensive to justify.

Until there was a forcing function.

Why SAP’s $8 Billion Buy Was a Slam Dunk for Qualtrics

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