What Elliott’s SAP Investment Could Mean for Customers

Geoff Scott
Geoff Scott in Strategy April 28, 2019

I read with great interest the news last week that activist investor Elliott has taken a $1.3 billion stake in SAP. A few of our ASUG Members likely have very intimate knowledge of what can happen when an activist investor starts getting involved in their organizations. Welcome to the club, SAP.

Who Is Elliott?

Let’s take a look at Elliott Capital Management to start. It’s been in business since 1977 and has come out on top after every major financial crisis by investing in distressed assets. Today, it’s known for running one of the largest activist funds in the world. Most recently, Elliott has put its equity to work to drive changes at German company ThyssenKrupp that included splitting into two independent companies and forcing out its chief executive and chairman.

Why Elliott Had Its Eyes on SAP

As SAP customers, we should carefully analyze how this news affects us. An activist investor like Elliott is not going to take a stake if it doesn’t think the share price is significantly undervalued. And frankly, the firm has a history of making good bets for the investors who have contributed to its $35 billion in assets under management. So, it clearly sees upside potential in its recent investment.

On the other hand, SAP has historically lagged its peers in terms of both its profit margins and its stock performance. On top of that, the expense of high-profile acquisitions like Qualtrics at $8 billion might leave us all asking why and what’s next

The million-dollar (O.K., billion-dollar) question is how does Elliott plan to unlock the potential within SAP? What does this mean for SAP leadership? And will this plan negatively affect our collective customer interest?

A Leaner (and Maybe Meaner) SAP

Elliot says it, “supports SAP management’s push to sharpen operational execution.” That seems to indicate that Elliott, at least in the short term, is not going to press for massive strategy changes or leadership upheaval. That sounds promising from a continuity perspective, given the recent high-level departures (Robert Enslin and Bernd Leukert, among others) that I hope are not the beginning of a more troubling trend.

For customers, a leaner and more efficient SAP should be welcome news to the extent it simplifies doing business with the company. I hope that SAP will continue to press forward with its “customer first” initiatives, which should help improve customer relationships further—and longer term, increase its revenue.

A Risk of Fattening Margins

On the other hand, one of my concerns is that SAP will not be able to achieve its operational execution goals and will look to increase prices as a way to fatten margins. ASUG will be on the lookout for this and will update our members accordingly.

Regardless of what you might forecast, this is an interesting development for SAP and one that ASUG will be watching closely in the months and quarters to come. We’ll continue to assess whether these changes are making things worse—or hopefully better—for SAP customers.

Join us for discussions like this with ASUG leadership at one of our national or regional ASUG Executive Exchange events near you to network with other executives looking to get more value from their SAP systems.