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.

ASUG mem­bers can 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.