The numbers are staggering. SAP SE is paying $8 billion to acquire Qualtrics International Inc., a maker of data collection and analysis software which expects revenue of just $400 million this year. What’s more, the Utah-based startup reported a net profit margin of just 0.8% in the nine months through September.

SAP is attracted by Qualtrics’ 40% growth rate, but it’s ponying up a massive premium for a company that was already preparing an initial public offering. Qualtrics chief executive officer Ryan Smith said in a conference call with investors on Monday that the IPO was already 13 times oversubscribed with the roadshow not yet complete, and would have valued the firm he founded with his father and brothers at between $5 billion and $6 billion. He’s certainly played his hand very well.

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For his part, SAP CEO Bill McDermott seems conscious of investor nervousness about the deal. Since the $2.3 billion acquisition of Callidus Software Inc. was completed at the start of the year, he’s been adamant that he’d henceforth restrict SAP to bolt-on deals. “This is clearly more than a tuck-in," he told investors Monday, adding hyperbolically that Qualtrics would have been the “most exciting IPO of this year." The drop in SAP share price by as much as 4.6% on Monday suggests shareholders are still taken aback.

They might rightly ask whether it suggests that growth is likely to disappoint without the acquisition. SAP is getting a software operation to collect and analyse market research and customer loyalty data. There’s no doubt that selling it through SAP’s existing sales channels can accelerate Qualtrics’ growth. But McDermott has a long way to go to justify the high price.

Alex Webb is a Bloomberg Opinion columnist covering Europe’s technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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