Is Salesforce.com on the auction block?
That was the report last week when Bloomberg reported that the venerable Cloud Computing Sales and Marketing application vendor has been approached by a suitor to be taken over.
The approach and the need for Salesforce.com to be sold are not surprising. The company has been a leader in CRM and platform computing the cloud. Its desirability is not in doubt, although its leadership might have peaked. Moreover, despite its surging revenues (by another 33% in the last year) the company has always suffered from low margins. There are two reasons for this. For one, the company spends heavily on operations and marketing. For another, the company has been an acquirer of companies and technology wading into marketing to bolster its sales-side offerings.
Last Wednesday the 29th of April the company’s stock took on 9% more value to give the California-based firm a valuation of $49 billion (US). That already is above the $44 billion (US) a suitor was ostensibly offering. By this week the value had fallen to $46 billion. Nonetheless, any buyer would have to look at book value plus premium to grab the company. This might mean a $60 billion (US) price tag. This is a truly mighty sum. Moreover, the company has $908.12 million (US) in cash on hand and twice that in receivables.
So, who is the potential acquirer? The company’s heft makes for very few suitors. Oracle is a serial acquirer and king of the nominations. Oracle is in the CRM and Cloud business already selling its own software built in-house or originally developed by Siebel. Oracle has approximately $44 billion (US) in cash and receivables. Safra Catz, Oracle’s CFO, was characteristic in responding dismissively. Nonetheless there is always some fun and games between those two CEOs who have since patched things up again. Larry Ellison is a founding investor in Salesforce.com. There is SAP whose spokesperson indirectly refuted interest. The companies have talked in the past, but not in regards to an acquisition should they be believed. There is Microsoft, whose Dynamics software has been the sole serious roadblock in Salesforce.com’s domination. As mentioned here Microsoft has an agreement in place with Salesforce.com. More importantly, Microsoft’s CEO since 2014 Satya Nadella is completely focused on the Cloud and the mobile experience. The Redmond-based giant is sitting on $95 billion (US) in cash and short-term investments. Microsoft’s Dynamics CRM is reportedly holding onto a 6% market share versus Salesforce.com’s 17%. Microsoft and Adobe announced an agreement last week as well. See the below link for reference to Adobe’s marketing play. A few observers have also pointed to Google. A dark horse is IBM. The last name officially exited the ‘applications’ domain years ago, but in actuality plays in the field through its financial/business intelligence/analytics offerings. Regardless, IBM may be interested in Salesforce.com’s Cloud technology. Could IBM be interested in taking Salesforce’s CRM off Oracle database and unto its own DB2?
Reality might be the Salesforce founder himself is ready for a sale. He has tried various strategic initiatives and agreements – including an attempt to build in-house financial software and tie up with Intuit in 2011, which was quietly discontinued in 2014 – to little avail. Subsequently Salesforce invested in Financial Force .
One last point for you readers: Salesforce’s annual revenue is in the $5 billion (US) range. taken purely from a revenue standpoint a $60 billion (US) deal would take 12 years to pay off.