Chapter 17: The Acquisition

How does it feel to hand over your life’s work? Gero shares the behind-the-scenes story of SAP’s acquisition of Signavio - a transformative partnership that promised to redefine the future of business processes.

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“There is someone you have to meet.” My old friend Jürgen Müller sent me a text message. It was September 2020.

Jürgen and I knew each other from HPI in Potsdam where we were PhD students at the same time. I did mine on business processes, Jürgen focused on supply chains and worked directly with Hasso Plattner himself, the founder of SAP and HPI.

After university, Jürgen stayed close to Hasso and followed him to SAP. We both lived in Berlin, not far from each other, and kept contact throughout the years.

He became Chief Innovation Officer and then Chief Technology Officer and executive board member of SAP a couple of years later. SAP is Europe’s biggest software company and being responsible for large parts of their development organization is quite a big deal.

In our call, he mentioned that there had been changes in the executive board (Jennifer Morgan left and Christian Klein was now their sole CEO) and Christian had worked out a new strategy for SAP. He picked “Business Process Intelligence” as one of the key growth drivers.

SAP had always been a process-centric company. Back in the 1970s, Hasso and his co-founders walked the factory floors and sat at canteen tables to understand all of their customers’ different business processes in detail. Then, they built software for exactly those processes. SAP soon became the thought leader for how companies run finance, supply chain, and HR best.

By the 2000s, SAP had lost this “process mojo”. They gladly left it to the consulting companies to have the process discussions with their customers. And at the same time, a new breed of software providers emerged that promised a more flexible “hyper automation” layer. They claimed that SAP would just be a glorified database underneath.

Now, as SAP was approaching its 50th birthday, Rouven Morato stepped up to save SAP on the business process front. He was Christian’s right hand and volunteered to bring the process topic back to life.

Like Jürgen, he was a prodigy and had moved through the ranks very quickly. He was one of the youngest regional CFOs SAP ever had and also their first Chief Data & Analytics officer.

He assembled a new unit and brought together different teams from across SAP. He reached out to the most important companies in the space to further inspire SAP’s strategy.

Rouven was the one that Jürgen suggested I should meet.

Ron and I organized a workshop to meet with the SAP team and delve deeper into their work on "Spotlight," a project they had been developing for some time. We began by giving them a tour of Signavio, showcasing our tools and methodologies. In return, they introduced us to Spotlight.

Spotlight functioned as a KPI tracker designed to scan all processes within a company, identify potential issues, and propose solutions for improvement. What made Spotlight stand out was its simplicity paired with deep process domain expertise - something we realized was missing at Signavio. Although the software was not yet ready for customer release, its innovative approach to process visibility and improvement was compelling and distinct from other offerings in the market.

Andre Wenz and Gregor Berg, who had initiated Spotlight under SAP’s intrapreneurship program a few years earlier, had continually refined their prototypes. Their work now offered unprecedented, data-driven insights into business processes, setting a new standard.

At Signavio, we had been providing customers with the tools - a sort of "blank canvas" - and they were responsible for filling in the details and driving the analysis themselves. The integration of Spotlight’s capabilities could potentially transform our offering, reducing the burden on our customers by providing them with more direct and actionable insights. This meeting highlighted the synergies and potential integration points between our technologies, marking the beginning of a promising collaboration.

“Gero, can you please have a look at my processes and tell me where I still have the biggest potential?” I heard this question so many times from customers.

Our knowledge about meter-to-cash in utilities or the impact of payment terms on procurement processes was extremely limited. With Signavio, customers needed to judge themselves where things went well and where they needed to improve.

I was impressed that SAP had what we lacked. Andre Wenz, Rouven’s main colleague on the product side, raved about tons of data and piles of process expertise. 

If only we could inject this knowledge into the Signavio technology, I thought to myself.

SAP’s vision around business processes was still quite limited in our view. It only focused on a few SAP-heavy business processes and was very IT-centric. We convinced Andre and Rouven that we needed to put business users into the center of everything and provide a comprehensive “process home base” for everyone in an organization. And most importantly: Consider all business processes of a company, no matter whether they touched SAP or not. Mark Elkin, our head of presales, took charge of detailing out how a combined offering could look like and how users would flow through the different modules. He was a master of creating compelling demos and his work distilled the essence of our joint vision.

Our expectations about the outcome of these discussions were low. Our previous attempts to partner with SAP had failed. In 2013, we had started negotiating an OEM agreement for their SAP Solution Manager product but could not agree on terms. We also had discussions to become the front end for SAP’s process automation products, but it didn’t materialize, either.

The biggest barrier to working closely with SAP had been their partnership with Celonis. As long as that was in place, we knew we could never position our full product portfolio with them. Still, we knew that the joint opportunity was huge. Selling our products through the SAP channel would immediately boost us - like it had boosted Celonis before.

Then, one Friday evening in mid October, Jürgen texted me and wanted to talk urgently. I was on a family trip, biking in the countryside just outside of Berlin. I was wondering what was so urgent. Once my kids were asleep, I called him back.

His message came as a total surprise. They felt we were the missing piece to their business process intelligence story. And he added: “SAP would like to acquire Signavio. What do you think?”

I didn’t reflect long and immediately replied, “Thank you, Jürgen, but we have no intention to be bought.”

Still, this was SAP and Jürgen was one of their executive board members. Plus, he was my friend. Therefore, I promised I would at least discuss it with my team and come back to him in a couple of days.

Jürgen said that SAP was in a rush because of an important upcoming announcement and would like to move quickly. We agreed we would talk again on Monday.

I let Nico, Willi, and Gerrit know right after the phone call. I also wrote to my investors, Mark and Dan from Apax. Within minutes, they called me to discuss the situation. It had only been 12 months since their investment, so the decision to sell wasn't straightforward. They weren't in any hurry to exit and needed a certain minimum return on their investment. However, they emphasized the significance of SAP's interest, advising that such opportunities should be taken seriously.

The first question they posed was straightforward: "Do you consider selling?"

"I am not sure," I responded, somewhat taken aback by the suddenness of it all. "This is all very unexpected."

I recalled a chapter from Ben Horowitz’s book, ‘The Hard Thing About Hard Things’, about selling your company. Horowitz concluded that this would be the single hardest decision a founder could face, yet frustratingly, he offered no clear answer on how to make that call.

The next day, after driving back to Berlin, I met with Nico, Willi, and Gerrit in the afternoon. Nico, who had departed Signavio a few months earlier, felt no urgency towards selling and left the decision to us. Willi and Gerrit were as ambivalent as I was. To clarify our thoughts, we began to draft extensive lists of pros and cons, evaluating what an acquisition by SAP would mean for Signavio - considering its impact on our team, our customers, our partners, our product, and on each of us personally.

For our investors, the situation was straightforward: They were primarily focused on financial return. Mark and Dan explained that they needed to realize a minimum multiple on their investment to consider any deal viable. They were optimistic about Signavio's future, willing to stay engaged for the long term, and even drew parallels with another portfolio company, Duck Creek, which was twice as big as Signavio in terms of software revenues and recently went public for six billion dollars. 

"We just wait another year or two, and you will be the next Duck Creek," they suggested. "But in the end, it's your decision, Gero. In my career, I've found the best decisions come from following the founder’s instinct," Dan concluded.

Reflecting on our list of pros and cons, the idea of acquisition began to seem more appealing. We saw potential benefits for our team and new possibilities for product development that we couldn't achieve on our own. There would likely be a positive impact for both our current and future customers as well.

While we had received interest from other companies before, the proposal from SAP was distinct. We knew the individuals involved, our role was central to their strategy, and our team would be well taken care of. It seemed like the perfect launching pad for Signavio's next phase.

However, we were also cautious, knowing how quickly such processes can unravel and trying not to be overly optimistic about the outcome.

After concluding that we wanted to explore this acquisition, I reached out to the rest of the C-level team: Mark, Daniel, and Ron. They all supported the idea of joining SAP. Mark had positive experiences from the Hybris acquisition by SAP and spoke highly of them as an acquirer. Ron was involved in product strategy discussions with Rouven and Andre and saw great potential. Daniel simply stated, "I just love transactions," eager to get started right away. The financial upside of cashing in on their Signavio shares and options was clear, though not overtly discussed.

We agreed to keep the team involved in the transaction small. It was just us founders, my investors Mark Beith and Dan O’Keefe, the C-level team, Mark Elkin, and Giuseppe, my Chief of Staff, to manage the project.

More people would be needed for the due diligence phase if we reached that point. But first, we had to negotiate a deal.

On Monday, I told Jürgen that we were open to exploring the opportunity but emphasized our price constraints. The investors had joined us recently and expected a certain minimum return on their investment. I asked about the price range they were considering, but he did not reveal any details.

As a first anchor, I mentioned that we had previously received an offer over €800 million euros, a number too low for our investors to even consider it.

That week, the formalities began. First came the non-disclosure agreement (NDA), followed by a questionnaire on our product and technology. The SAP team chose the codename for the project: "Chablis."

Nico agreed to help with the process, leveraging his fresh knowledge of Signavio's products and his availability.

Willi ordered a couple of bottles of Chablis wine to match the project's codename - a critical step.

We were prepared to proceed, although arranging the management presentation took some time.

We began to question whether the urgency Jürgen had indicated was real, especially as we encountered unexpected delays. Our doubts seemed confirmed when, on October 26, SAP’s stock price plummeted over 20% in a single day due to poor quarterly numbers and a less favorable financial forecast shared by Christian, related to the company's transition to cloud software.

This is it, we thought, it’s over. It seemed unlikely that a company, having just lost €30 billion euros in market capitalization, would proceed with an acquisition.

The silence from our contacts at SAP during this period was unsettling. Rouven, in particular, did not respond for several days. Concerned, I reached out to ask if the project was still on. To my surprise, Rouven replied with confidence that the stock drop had no bearing on our ongoing discussions.

When we finally held our management presentation, it went exceptionally well. We arrived thoroughly prepared, with all the information that the SAP team was interested in. Daniel had performed superbly in organizing our data and presentations, and our investors had also played a crucial role in shaping the content appropriately.

The negotiation process with SAP was tedious, and our initial excitement waned as things moved slowly again. When SAP's offer finally came in at €700 million euros, we were all profoundly disappointed. It seemed that Jürgen hadn’t effectively communicated our message on valuation.

We decided that Mark and Dan would handle the price negotiations while I would maintain a backchannel with Rouven as necessary.

We communicated directly to SAP that we were considering an IPO at the end of 2022, projecting a valuation of over €2 billion euros. We suggested that if SAP was interested in an earlier transaction, we could potentially meet in the middle around €1.3 billion euros.

However, SAP’s response was resolute. They made it very clear they couldn’t justify such a valuation. They used a Discounted Cash Flow (DCF) calculation to estimate a net present value of the Signavio investment case, and they told us that the numbers were not anywhere near €1.3 billion. Our negotiations seemed to hit a dead end swiftly, and both SAP’s M&A team and our investors were ready to give up.

Fortunately, I had maintained a healthy dialogue with Rouven, the business sponsor of the transaction. He understood the need to commit to future sales to support the investment case and promised to “sharpen the pencils.” Yet, he also clarified that reaching our latest valuation expectation would be impossible.

Among us founders, the exact figure was less critical. Whether it was €700 million euros, a billion, or more - it was all more money than we could realistically spend in our lifetimes, especially since we still owned more than 40% of the company.

However, we were acutely aware that each additional euro mattered significantly for our investors and our employees. Many of our colleagues had recently been granted options with a strike price of €360 million euros, so the final sale price would have a considerable impact on them.

SAP requested more detailed data. We delved into specifics like pipeline numbers and forecasting quality. It was evident that there was a lot of meticulous work being done on SAP's side as they calculated and reconsidered what they could defend as a feasible number.

Negotiations continued, handballing between Mark and Dan and SAP’s M&A team. It became increasingly clear that €1 billion euros was a threshold that SAP was hesitant or unable to exceed. We internally agreed that we would support this number as well.

SAP's next offer came in at €950 million euros. It was closer, but Mark persisted, pushing for every possible cent.

Finally, SAP's offer solidified at €957 million euros, and they indicated they would not increase further. This was the final figure we had to consider.

If the deal with SAP were to materialize, the Series C investors would see a 2.8x return in less than 18 months - a performance translating into more than 100% annualized return. This contrasts sharply with the typical 6-7% annual return from the stock markets - an impressive achievement by any standard.

Our ARR was projected at €55 million euros, setting the purchase price at a 17x ARR multiple. Although high by historical standards, the valuation climate of 2021 was pushing even larger figures. For a company of our caliber and market position, this multiple was considered robust at the time.

In early December, we signed the "Letter of Intent." And only then, the real fun started. Daniel, Nico, and Willi dove into the due diligence, while I coordinated all the legal work.

On the legal front, Signavio was represented by a single law firm that acted on behalf of all shareholders, but each party also brought their own legal counsel to the table to ensure their specific interests were protected. The founders, Summit, and DTCP each had their own lawyers, which meant while we agreed on major points, there were slight differences in interests, particularly between us founders and our financial investors.

As founders, we were primarily focused on optimizing conditions for the employees and providing all necessary guarantees, while the investors aimed to streamline the deal to avoid any potential entanglements.

The legal discussions were a tough battle. Often, I found myself out of depth with the legal intricacies, but our investors were deeply involved, ensuring every detail was scrutinized. Discussions extended even to Christmas Eve, where we spent hours reviewing the latest contract revisions.

To minimize distractions, only Mark Holenstein, Mark Elkin and Gerrit from the Go-To-Market team were aware of the discussions with SAP. The rest of the sales teams were kept in the dark to focus on closing the year strongly without disturbances.

In the end, we managed to hit our forecasted revenue numbers with only minor deviations. I was grateful that no significant issues arose during the process, allowing us to concentrate on finalizing the deal.

Our target was to announce the acquisition on January 27, 2021, coinciding with SAP’s introduction of its new cloud offering, "RISE with SAP." Signavio was to be a central element in this strategy, highlighting SAP’s need to transition its On-Premise customers to the cloud with a robust business optimization tool integrated into the offering.

As legal negotiations continued, we prepared for the big reveal. I traveled to Walldorf in early January for the announcement's recording. We filmed two versions - one with Signavio included in the narrative and another one without, just in case. The recording session was charged with anticipation, with the version featuring Signavio capturing everyone's dedication and enthusiasm, while the alternative was noticeably less spirited.

This was the first time I met Rouven and Luka Mucic, SAP’s CFO and my prospective boss, in person. The Covid lockdown was ongoing, and everyone was still working from home.

Getting closer to the announcement date, we gradually shared the news with our senior managers. It was a relief that they all welcomed the news. They congratulated us ahead of time, as if it was all done already.

The notarization of the transaction was scheduled for Tuesday, January 26, perfectly timed for SAP's RISE announcement the following day.

However, the day before, as I was on the train from Berlin to Munich for the signing, Geraldine Teboul, my head of marketing, called me unexpectedly. Bloomberg had contacted us to comment on a rumor that SAP was planning to acquire us. Two days before the announcement, this was concerning!

We had meticulously planned all communications regarding the acquisition, crafting specific messages for our team, our customers, and our partners. We feared that this would create unnecessary uncertainty and in the worst case could even risk the transaction.

We immediately discussed the situation with our SAP colleagues. They reassured us that the transaction was still on track, regardless of what Bloomberg might publish. They also explained that journalists required confirmation from two independent sources before they could run with the story. We agreed that none of us would provide any comments.

Then, our colleagues from GP Bullhound informed me that Bloomberg had reached out to them as well.

We hoped that nobody would confirm the rumor and avoid the early news. Bad luck. The same evening, Bloomberg broke the news: “SAP in talks to buy Apax-backed cloud startup Signavio”. They were well informed about the purchase price and also about the timing of the transaction. At least, they didn’t publish any false information, I thought.

We knew that the news would spread like wildfire among our employees and that we needed to react. 

I sent a quick note to the team: 

“Dear Signavians, 

You might have seen the rumors that were published by Bloomberg today, announcing a potential acquisition of Signavio by SAP. 

While I cannot confirm any such transaction at this stage, I can only say that we have started discussions with SAP about a potential deepened collaboration. And obviously, it is very unfortunate that someone started spreading information. 

As soon as I am able to communicate anything further, you will be the first to know. 

Please do not worry. Rest assured that all the decisions that we as a company take will always be in the best interest of our employees, our company and our customers.
I ask you to keep this information confidential. If the media reaches out to you for comment, please always refer them directly to Geraldine. 

Please do not contribute to further speculation on social media, either. 

We have an All Hands call scheduled for Wednesday anyways, happy to give you an update then.

Best, Gero” 

I arrived in Munich late in the evening. The city was completely empty. Not a single person or car in the streets. It was peak lockdown again.

Daniel and I met in the bar of our hotel. It was on the highest floor of the building and had glass walls and ceiling. It had snowed heavily in Munich and the whole city seemed to be in winter sleep. We had a couple of drinks until the bar closed.

The next morning, the notarization procedure started. Like with the two big fundraises before, it took forever to go through the thick contract and there were still small modifications to the text here and there.

We were eager to get it done before midnight, as we wanted to trigger the antitrust clearance process the same day. We needed clearance for the transaction from the German, the U.S., and a couple of other governments. As the process takes up to six weeks, every day counted for us.

At 11:30pm, we finally signed the documents. I messaged my co-founders and my investors. Everybody was super happy and relieved that it was done, despite all the turbulence of the last weeks.

There was some risk left regarding antitrust. The authorities could still conclude that SAP is not allowed to acquire Signavio. We knew that Celonis hated this deal, it meant they lost their most important sales channel overnight and would have to face a turbocharged Signavio going forward. We assumed they would try anything they could to stop the transaction from concluding. My investors were confident though that we wouldn’t face any problem.

We emptied a couple of bottles of champagne with all the lawyers in the room. For the occasion, I also brought a special bottle of whisky. I love Scotch and Japanese whisky. It was an 18-year-old Yamazaki, one of the nicest whiskies you can get. We emptied the whole bottle that night. Delicious!

This was a massive milestone and we wanted to continue celebrating. But first, we needed food. It was 2 o’clock in the morning and the city was in lockdown. The only open place was a McDonald’s drive-thru restaurant on the other end of town. We took a couple of taxis to get there and pick up burgers and fries. We then met in the lobby of our hotel to devour the food and continue celebrating.

The original plan had been to get back to Berlin with the last flight out on Tuesday. But as the notarization had taken so long, we now spent the night in Munich and flew out the next morning instead.

Completely deprived of sleep and slightly hung over, we arrived in the Berlin office at 9am on Wednesday morning. We did a final check with the SAP colleagues on the news cascade for the day. We had scheduled a couple of briefings with selected journalists and industry analysts, so that they could provide the background story once the press release hit the wire.

At 2pm, we held our All Hands call, coinciding with Christian Klein's virtual announcement of RISE with SAP. Thanks to the Bloomberg report two days prior, the news of our acquisition was not a surprise to anyone on the team.

During the call, we shared extensive details about the reasoning behind our decision to get acquired, why SAP chose to pursue this deal, and what the next steps would be in the upcoming weeks and months.

We disclosed the compensation that employees would receive for their virtual shares and outlined the timing of these payments. Additionally, we introduced a special "founder bonus" that we had devised. Every employee received a cash bonus of ten thousand euros, plus an additional ten thousand for each year they had been with the company, regardless of their role - whether they were working students, part-time staff, or their location worldwide. This bonus amounted to another €15 million euros, on top of all other employee participation schemes we had implemented over the years. Our goal was to ensure that everyone benefited from this transaction, not just the top management. Altogether, €180 million euros were allocated to employees.

Following the announcement, a flood of messages began. The reception from my future colleagues at SAP was overwhelmingly positive. I received over 200 messages from SAP colleagues alone that day. Since SAP had been using Signavio internally for many years, and thanks to all those personal connections, we were familiar with the SAP team, and it was clear this acquisition was a significant step for SAP.

I was eager to dive into the post merger integration process. However, instead, we entered a period of awkward silence between signing and closing. We had to await antitrust clearance, and our colleagues at SAP were very cautious about not influencing anything at Signavio during this sensitive period.

The process for antitrust clearance was such that the authorities had a specific time frame to raise any objections. If they did not act within this period, clearance was assumed once the timeframe expired.

So, we counted the days, eagerly anticipating the final approval.

We continued operating Signavio as usual, uncertain about what the coming months would bring and how the acquisition would impact our operations. Anticipating significant growth under SAP’s umbrella, we prioritized hiring for the presales department, expecting that it would need substantial expansion. We also hoped that other operational areas, such as recruiting, would receive support from SAP’s central teams. This assumption turned out to be a significant oversight. We greatly underestimated the duration we would need to operate independently and consequently faced a shortage of recruiters in the months following the acquisition.

Meanwhile, SAP was actively engaged in addressing numerous inquiries from antitrust authorities. We suspected that one of our competitors was attempting to heavily influence these authorities against us.

Eventually, the waiting period for antitrust clearance concluded, and we were able to move forward with finalizing the acquisition. A few administrative steps remained, with the most significant being the transfer of funds. Nearly €1 billion euros in cash was poised to change hands.

All of us founders had our bank accounts with Postbank, a typical retail bank where there is no dedicated contact person for account holders. Normally, if you have an inquiry or request, you're resigned to calling a hotline and enduring lengthy waits, often without a guarantee of receiving a helpful response.

Crucially, we needed someone at the bank who could confirm the receipt of the funds as soon as they were processed in the system, well before they would reflect in the online banking interface. We were concerned that our bank might not be able to provide this level of service, and we considered switching banks to ensure we could confirm the receipt of the money.

Just days before the scheduled closing date, we finally connected with a representative at Postbank who could assist us. He took down all our phone numbers and committed to monitoring incoming wire transfers on our behalf. He admitted he had never dealt with transfers of such magnitude and shared our nervousness about the process.

On March 5, 2021, at 2pm, the transaction was finalized. The money had successfully arrived, and with that, we officially ceased to be the owners of our company. Signavio was now a part of SAP.

I sent a quick message to my management team to inform them about the completion. Everyone expressed relief that things had concluded successfully, marking the beginning of a new chapter for us all under the SAP umbrella.

There was an immediate reply to my message that would present our first big integration challenge.