Earlier this week, leading SaaS firm Salesforce.com (click ticker for report: ) made headlines acquiring cloud marketing platform ExactTarget (ET) for $2.5 billion in cash ($33.75/share).
The move comes as Salesforce.com hopes to round out its product offering, and adding a company largely known for its email marketing platform helps the firm move toward this goal. Salesforce.com CEO Marc Benioff, excited about the transaction, explained that the landscape is changing, saying on the firm’s conference call about the deal:
“There is no doubt our whole industry is changing, and the opportunity to create solutions in sales and service and marketing that are unified, that are mobile, that are social, that are in the cloud, that this combination of these two companies positions us in a way as never before.”
Prior to this acquisition, Salesforce.com’s marketing platform was known to be relatively weak. While the firm features social media monitoring software Buddy Media, which also fetched several hundreds of millions of dollars, the company lacked an email service, which we believe is critical to any company’s marketing strategy. Unlike social media, where we believe the impact is still largely unquantifiable, e-mail marketing delivers strong data and analytical insights for businesses. In Benioff’s eyes, the deal rounds out the product lineup and adds value to the firm’s existing offering.
Of course, with any acquisition, price is paramount. The firm paid a premium of about 47% over the prior day’s closing price, and 5.5x consensus fiscal year 2014 sales (yes, sales). Additionally, ExactTarget hasn’t been profitable for several years, and its acquisition will weigh on Salesforce.com’s near-term results. The company used virtually all of its cash to consummate the deal, and we aren’t sure if it ever will be able to live up to the bold assumptions embedded in the forecast.
Overall, we’re not huge fans of the transaction, nor are we at all interested in Salesforce.com’s stock at this time. With ExactTarget off the market, other automated email services such as ConstantContact (CTCT) and Responsys (MKTG) could become acquisition targets for other cloud marketing competitors such as IBM (click ticker for report: ) and SAP (click ticker for report: ). We’re watching the M&A landscape very closely.