Düsseldorf 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 non-profit foundation of co-founder, major shareholder and Chairman of the Supervisory Board Hasso Plattner participated as a capital provider. Investors feared conflicts of interest.
In response, the Hasso Plattner Foundation (HPF) has announced that it will sell its stake to a neutral investor. The foundation’s exit is now taking concrete forms: “We are in the final phase with various investors and assume that we will see the first results in a timely manner,” Herbert Heitmann, spokesman for the Hasso Plattner Foundation (HPF), told 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 Annual 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 business unit was recently considered neglected in the Group, the spin-off is intended to provide new dynamics.
“If SAP Fioneer is successful in the market with its solutions based on our technology, SAP will also benefit,” said Georg Kniese, who heads Corporate Development at SAP and negotiated the deal – for example by selling licenses.
As a partner for the spin-off, SAP won Dediq: According to the sales documents available to Handelsblatt, the Munich-based investment company has provided 309 million euros in equity and pledged another 300 million euros, for example, if acquisitions are to be financed. For this, the investor received 80 percent of the shares, the software manufacturer remained with a 20 percent stake.
Dediq did not finance the investment entirely from its own funds, the Hasso Plattner Foundation contributed a significant part. The result: In the special purpose vehicle through which Dediq invests in Fioneer, Dediq CEO Matthias Tomann directly holds 35.3 percent of the shares through his company MTI Beteiligungen, the Foundation 46.1 percent. The remaining shares are held by several investors from the Dediq environment.
In light of the criticism, the foundation stated 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 resell the stake to a neutral investor, and without making a profit in the process. According to financial circles, Fioneer’s valuation is around 760 million euros.
Complex spin-off complicates deal
Originally, the transaction organized by the investment bank UBS was to be completed by the turn of the year. However, the talks were delayed for several reasons.
A big problem: the business with special products for the financial industry was not a separate entity at SAP. “It is difficult to understand the valuation because there are no audited historical financial reports,” Dediq CEO 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 agree to several requirements. The investment horizon is expected to last until the 2030s, which is too long-term for many investors. In addition, only non-voting shares were for sale. Private equity companies that optimize acquired companies and then resell them were thus eliminated as bidders. Other providers of banking software, on the other hand, dropped out because they are in competition with SAP.
The role of the designer is taken over by Dediq alone. The future investors are comparable to “limited partners” who entrust their money to private equity firms, said Dediq CEO Matthias Tomann. Dediq acts like a general partner and receives an industry-standard remuneration.
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. The profit share (carried interest) of Dediq is a maximum of 25 percent, but in the end, depending on the return on sales, a lower value could also be due.
Dediq CEO Tomann received his shares at a lower price than the other investors: Tomann acquired all voting “Serie 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 have 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 Annual General Meeting is therefore likely to be the difficult-to-understand valuation of Fioneer. Competitors such as Temenos and Guidewire are traded on the stock exchange with seven times their turnover, Infosys and Wipro with three to four times. By contrast, Dediq and SAP only valued Fioneer at 2.8 times the revenues, which are expected to reach 266 million euros this year, according to the sales documents.
SAP did not comment specifically on the figures. The subject of the transaction is only the industry-specific solutions for financial service providers and in turn only the license sale and consulting, 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 with a complete business handover. Dediq CEO Tomann also stressed the significant investment needs. Fioneer is currently generating losses, and the operating result (Ebitda) is expected to be negative up to and including 2023.
Fioneer, however, has big plans for the future: according to the sales documents, sales should increase to 680 million euros by 2025, to 1.45 billion euros by 2030, mainly with the help of acquisitions and innovations that complement the existing platform and are to be developed together with customers.
The operating result (Ebita) is expected to increase from minus EUR 60 million this year to plus EUR 98 million in 2025 to EUR 381 million in 2030. Fioneer aims to get significantly more money out of its customers than before, for example by providing closer customer support with service offers. While competitor Avaloq generates an average of 3.7 million euros per customer, Fioneer generates around 400,000 euros.
