European business software giant SAP to acquire U.S. cloud sales management software Callidus Software Inc for $2.4 billion

The move underscores SAP core strategy of leaning on cloud-based solutions to drive up its margins and revenues.

On the sidelines of SAP, Europe’s top tech company, posting results that were on the lower side of market expectations, the firm’s Chief Executive Bill McDermott announced a $2.4 billion acquisition of a U.S. company.

While analysts had expected SAP to post its fourth quarter operating profits at 2.41 billion euros, the firm disclosed its fourth-quarter non-IFRS operating profit ar 2.37 billion euros ($2.93 billion), which denotes a rise of 6% in comparison to the previous year.

Taking a quick step forward, SAP’s executives stated the firm had turned the corner during the last quarter and expects to see sustained improvements in its margins in 2018.

“I‘m happy to tell you that new cloud bookings surged 31 percent in Q4,” said Bill McDermott, SAP’s CEO while adding that its cloud-based subscription model had enabled it to gain market share.

“This paves the way for the strong growth and margin expansion we expect in 2018 and beyond,” said Luka Mucic, SAP’s Chief Financial Officer in a statement.

In recent months, SAP, a $140 billion business software company, which accounts for a quarter of the Stoxx Europe 600 Technology Index, has invested heavily in cloud services and hopes the move will payoff improved margins from this year.

SAP stated it expects its non-IFRS revenue to be in the range of $30.43-$31.05 billion (24.6 to 25.1 billion euros, in line with the analysts’ forecasts.

Significantly, SAP’s outlook highlights that it expects its margins to further improve in 2018 in the range of 5% to 7%, excluding currency fluctuations, and it expects its operating profits to grow by 8% to 11%.

In the fourth quarter, cloud subscriptions and support revenues have risen by 28% percent to 997 million euros, compared to market expectations of a rise by 22%.

Revenues from SAP’s mainstay software licenses and support operations have risen by 2% to 4.81 billion euros against analysts expectation of a decline of 1.1%.

SAP also disclosed that it would acquire Callidus Software Inc, a cloud-based, sales management software company for $2.4 billion.

“We are in no way looking to be in the M&A business at scale. This is a tuck-in,” clarified McDermott.

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