What does the $8 billion deal for Utah’s Qualtrics mean for Silicon Slopes?

(Al Hartmann | Tribune file photo) Ryan Smith, CEO of Qualtrics, at the 2018 Silicon Slopes Tech Summit at the Salt Lake Convention Center.

Lehi • Billed as one of the largest transactions of its kind in Utah history, last week’s news of the $8 billion sale of Provo software company Qualtrics could add another dash of rocket fuel to the already successful chemistry of Silicon Slopes.

SAP, a German multinational giant in cloud and business-services software, announced a cash agreement late last Sunday to buy Qualtrics, just as the fast-growing customer-survey firm neared an initial stock offering as the third company from Utah’s tech corridor to go public in 2018, behind Pluralsight and Domo.

SAP swooped in just ahead of the IPO and paid top dollar, reportedly after courting Qualtrics CEO Ryan Smith in the stock offering’s due-diligence phase. And for its sheer size in the worldwide business-to-business software sector — let alone for a family-run company now based in Provo and Seattle — there are now real prospects the SAP-Qualtrics mashup will bring more attention, prestige and investment for the rest of Utah’s more than 6,500 technology firms.

“We build companies that stand up against anyone in the world,” said Clint Betts, executive director of Silicon Slopes, the nonprofit collective of firms and government officials representing Utah’s tech “ecosystem” centered on the I-15 stretch linking Salt Lake and Utah counties.

(Al Hartmann | Tribune file photo) Clint Betts, executive director of Silicon Slopes, welcomes over 14,000 to the 2018 Silicon Slopes Tech Summit at the Salt Lake Convention Center in January.

By Thursday, when Qualtrics announced Barack Obama would appear at its X4 Summit in March, Betts said the knock-on effects for Silicon Slopes of this “crazy year” of Utah IPOs were starting to look transformational.

“We’ve been building towards this for 15-20 years,” he said. “We’re no longer a regional hub. We’re a global force for tech and innovation.”

The president and CEO of the Utah Technology Council, which advocates for the state’s tech sector, called the Qualtrics deal and word that Ryan Smith and his brother Jared will continue to run the company from Utah “a beautiful ending to an incredible year.”

“When you get companies like Qualtrics and Pluralsight and Domo and Lucid — I could go on and on — that are bringing in this kind of talent, it just helps to grow our credibility, which is already really high,” said John Knotwell.

A global look

As it creates a new round of Utah tech billionaires, the Qualtrics deal also brings invaluable notoriety to the state’s growing talent pool of company executives, software engineers, products designers and startup veterans.

“One high profile deal can create months and years of attention,” said Todd Thibodeaux, president and CEO of CompTIA, a top trade association for the IT sector.

Given SAP’s European base, that is particularly true of new eyeballs from an international set of potential financiers previously unaware of Utah’s potential. State trade officials will seek to capitalize on the transaction with visiting delegations from China, United Arab Emirates, Qatar and Ireland in the coming weeks.

“This provides a prime example of the value of foreign investment both for providing capital to growing Utah companies and for solidifying Utah's position as a world-class destination for investment,” said Miles Hansen, president and CEO of World Trade Center Utah.

The state can also expect a cascading effect, experts said, among its extensive network of startups, incubators and inventors who’ll draw inspiration from the immense success of a home-grown company like Qualtrics.

“They might not be captivated by [Facebook CEO] Mark Zuckerberg, but it’s always inspiring when it’s your neighbor,“ said Betts. “More than inspiration that will change the community, though, will be the validation that we can build an $8 billion tech company in Utah.”

Zeal for the deal

The Qualtrics deal is also among the largest ever for SAP, a behemoth with nearly $30 billion in yearly revenues, markets in 193 countries and a track record of buying scores of companies worldwide.

SAP said it had arranged financing for $8 billion for the purchase, set to close in late 2019.

Qualtrics, after carefully navigating prior infusions of investor capital while keeping management autonomy, was considered Utah’s most valuable private tech company. SAP’s final bid — a generous multiple of company earnings, analysts said — appeared to reflect its zeal for a match between the companies' niches in analyzing the big data of how businesses connect.

In a video statement issued with Bill McDermott, CEO of SAP, as news of the transaction broke, Smith called the prospect for blending Qualtrics’ customer experience-management expertise and SAP’s global dominance in the analytics of business operations “a once-in-a-generation opportunity.”

(Photo courtesy of XOData.com) Ryan Smith, CEO of Provo-based Qualtrics, and Bill McDermott, CEO of SAP, as seen in a video discussing the business potential of German-based SAP's $8 billion acquisition of Qualtrics, announced a week ago.

“We’re going to change the whole face of enterprise technology with this combination,” Smith said.

“SAP is the fastest growing cloud company in the large-scale business software industry,” added McDermott. “Qualtrics is the fastest growing business software company in the experience management space.

“If you combine those two forces,” said McDermott, “you have a juggernaut of cloud growth.”

In 2009, a Utah web-analytics company called Omniture — similar in size to Qualtrics at the time, growing at similar pace, but with bigger profit margins — sold to software giant Adobe for about $2 billion.

Many consider the Omniture sale a similar milestone to this year’s IPOs and the Qualtrics deal, in that it brought Adobe’s highly visible headquarters to Lehi, which one CEO described as a sort of Silicon Slopes anchor tenant.

“Adobe’s been fantastic for our community,” said former Omniture CEO Josh James, who went on to found Domo in 2010 and runs it today.

James, along with Qualtrics' CEO Smith and Pluralsight CEO Aaron Skonnard, also is a key supporter of Silicon Slopes as an ecosystem, though he said the corridor still needs a major Fortune 500 tech company — "or three of them. That’s when we’ll finally be like, ‘Ok, we’ve arrived. We’re done. We made it.’ "

The Qualtrics deal is “certainly exciting to see," he said. “One of the best transactions that’s happened in years happened right here."

Multiplier effect

In real terms, as the Qualtrics deal is finalized, that capital will be international money repatriated to Utah.

Some of that will turn into investment cash for future startups, likely to fan out over time as fully vested executives, top employees and early investors move on from the company, founded in 2002 in the Smiths’ parents’ basement.

(Photo courtesy of Adobe Inc.) Software giant Adobe's $90 million building on its campus along Interstate 15 in Lehi.

Industry insiders say that’s a key lesson from Utah’s earlier waves of tech leaders, including companies like WordPerfect and Novell, whose many successful employees used their newfound wealth as seed money for a next generation of startups.

“These people become investors. They start their own companies. They create more and more jobs,” said Betts. “The wins are reinvested back into the community.”

Domo CEO James says that was also the case in Adobe’s acquisition of Omniture, and has continued as the talent base of Utah’s tech sector builds in depth and earning power.

“There’s more credibility to go out and get meaningful capital when these people are starting companies,” he said. “That experience of having seen it, knowing the pitfalls to avoid or knowing what worked well and doubling down on that, I think that’s valuable to all of us.”