Dusseldorf The construction caused a lot of criticism right from the start: SAP announced last year that it would continue its business with financial service providers in a joint venture with the investment company Dediq. The charitable foundation of co-founder, major shareholder and chairman of the supervisory board Hasso Plattner participated as an investor. Investors feared conflicts of interest.
In response, the Hasso Plattner Foundation (HPF) announced that it would sell its stake to a neutral investor. The foundation’s exit is now taking concrete form: “We are in the final phase with various investors and assume that we will see the first results in the near future,” said Herbert Heitmann, spokesman for the Hasso Plattner Foundation (HPF) to the Handelsblatt.
Almost a year after the announcement of the sale, the actors involved could soon draw a line under the episode. As a listed company, SAP in particular is under pressure to justify itself: Critical questions from investors are to be expected at the general meeting on Wednesday. Because possible conflicts of interest and the difficult to understand valuation of the joint venture continue to cause unrest.
Fioneer develops special solutions for banks and insurance companies. The joint venture is intended to ensure that the unit operates independently of SAP, but that the products are compatible with the portfolio of the German software manufacturer. The division was recently considered neglected in the group, the spin-off is intended to provide new momentum.
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“If SAP Fioneer is successful on the market with its solutions based on our technology, SAP will also benefit,” said Georg Kniese, who heads the Corporate Development department at SAP and negotiated the deal – for example by selling licenses.
>> Read about this: This is how the SAP spin-off Fioneer advertises for the financial sector
SAP won Dediq as a partner for the spin-off: According to the sales documents available to the Handelsblatt, the Munich-based investment company has provided 309 million euros in equity and committed a further 300 million euros if, for example, acquisitions are to be financed. In return, the investor received 80 percent of the shares, while the software manufacturer retained a 20 percent stake.
Dediq did not finance the participation entirely from its own resources, the Hasso Plattner Foundation contributed a significant part. The result: Dediq boss Matthias Tomann directly holds 35.3 percent of the shares in the special-purpose vehicle through which Dediq participates in Fioneer through his company MTI Beteiligungen, the foundation 46.1 percent. The remaining shares are held by several investors from the Dediq environment.
In the face of criticism, the foundation said in July 2021 that it thought the deal was clean. Hasso Plattner is not involved in the investment decisions. Nevertheless, the organization announced that it would sell the stake to a neutral investor without making a profit. According to financial circles, Fioneer’s valuation is around 760 million euros.
Complex spin-off complicates deal
The transaction, organized by the investment bank UBS, was originally supposed to be completed by the turn of the year. However, the talks have been delayed for a number of reasons.
A big problem: The business with special products for the financial sector was not a separate unit at SAP. “It is difficult to understand the valuation because there are no audited historical financial reports,” Dediq boss Matthias Tomann told Handelsblatt. This is one of the reasons why the initiation of the deal took a good 18 months.
In addition, interested parties had to accept several specifications. The investment horizon is said to extend into the 2030s, which is too long for many investors. In addition, only non-voting shares were for sale. Private equity companies, which optimize acquired companies and then resell them, failed to bid. Other providers of banking software, on the other hand, dropped out because they compete with SAP.
Dediq alone takes on the role of designer. The future investors are comparable to “limited partners” who entrust their money to private equity firms, said Dediq boss Matthias Tomann. Dediq acts like a general partner and receives a fee that is customary in the industry.
Dediq receives annual consulting fees of initially two percent, later 1.5 percent on the paid-in capital. The fees are limited to the initial investment of 309 million. There should be no fees for the additional 300 million. Dediq’s carried interest is a maximum of 25 percent, but it could end up being lower depending on the return on sale.
Dediq boss Tomann got his shares at a lower price than the other investors: Tomann acquired all voting “Series A” shares for a total of 43 million euros at a price of 121 euros per share. Other co-investors from the Dediq environment and the Hasso Plattner Foundation bought all previous “Series B” shares for a total of 267 million euros at a price of 410 euros per share.
Significant investment needs weigh on valuation
One topic at the SAP general meeting should therefore be the difficult to understand assessment of Fioneer. Competitors like Temenos and Guidewire trade at seven times their revenue on the exchange, while Infosys and Wipro trade at three to four times their revenue. Dediq and SAP, on the other hand, only valued Fioneer at 2.8 times the revenues, which according to the sales documents should reach 266 million euros this year.
SAP did not comment specifically on the numbers. The subject of the transaction is only the industry-specific solutions for financial service providers and, in turn, only the sale of licenses and advice, but not the maintenance of existing customers, said SAP manager Kniese.
Since this traditionally profitable part of the business remained with SAP, this led to a lower valuation than in the case of a complete business transfer. Dediq boss Tomann also emphasized the considerable need for investment. Fioneer is currently making losses, the operating result (Ebitda) is expected to be negative up to and including 2023.
However, Fioneer has big plans for the future: According to the sales documents, sales are expected to increase to 680 million euros by 2025, and to 1.45 billion euros by 2030, mainly with the help of acquisitions and innovations that complement the existing platform and are developed together with customers should be.
The operating result (EBITA) is expected to increase from minus 60 million euros this year to plus 98 million euros in 2025 and 381 million euros in 2030. Fioneer has set itself the goal of getting significantly more money out of its customers than before, for example through closer customer support with service offers. While competitor Avaloq has an average turnover of 3.7 million euros per customer, Fioneer has around 400,000 euros.
More: From Apple to McKinsey: Why partnerships are becoming so important for SAP.