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Tim Green

Salesforce Acquisition Speculation Lights a Fire

by Tim Green | Dun & Bradstreet Editor

May 1, 2015 | No Comments »

salesforce_blog_image_1100pxThe report this week that Salesforce.com has hired a banking firm to help it consider an acquisition offer sparked a wildfire of speculation that burned through the tech world.

The speculation jolted Salesforce’s stock price, which peaked at more than $75 a share on Wednesday and closed at $72.82 on Thursday. It started the week at $68. The company’s market capitalization is more than $49 billion, making an acquisition a costly endeavor.

Companies mentioned in reports as possible suitors include Microsoft, Oracle, IBM, and SAP. All could use Salesforce’s market-leading cloud-based customer relationship management software, and all could find the money to fund the deal.

Cloud-based computing, using software stored on computers in data centers, is growing. Users find it more flexible than installing major software applications on their own computers. And, with the subscription payment model of paying for what you use, it can be less expensive.

Salesforce has been one of the leaders in cloud-base software. The company’s revenue has increased nearly 70% from 2011 to 2015 (ended January), when its sales reached $5.3 billion. While the rate of revenue growth has diminished by about a percentage point per year, it’s still higher than 30%. The company hasn’t posted a profit since 2011, to the consternation of some investors, as it spends to drive sales.

Salesforce has always offered its products in the software-as-a-service model, so it doesn’t have the legacy technology issues that plague the companies that could be its suitors.

Oracle, Microsoft, IBM, and SAP are in the midst of building cloud-based businesses. Those businesses are growing, but not fast enough to please many investors.

The addition of Salesforce’s stable of software products would advance the cloud efforts of any of those companies. The best fit might be Oracle since that’s where Marc Benioff, Salesforce’s founder and CEO, got his start. But Safra Catz, Oracle’s co-CEO, said Thursday that it would be good for Oracle if another company bought Salesforce because of the disruption it would cause in the market.

Neither Salesforce nor any of the potential buyers has commented on the Bloomberg report.

One company that has not come up in the speculation is one that might make the most sense under different circumstances: Dell Inc.

For starters, Benioff and Michael Dell, CEO of Dell Inc., have things in common. Both are 50 years old and founded their companies.

And they’re friends, according to reports. Earlier this year they engaged in a fitness competition, as measured by Fitbit devices, to raise money for charity. Benioff’s team won by walking about 794,000 steps over five days to the Dell team’s 722,000 steps.

Perhaps Benioff and Dell are so friendly because their companies are more complementary than competitive. At their fundamental levels, Salesforce is a software company and Dell is a hardware company.

The companies have worked together for years. Dell has been a reseller of Salesforce products for several years, and the companies have worked together to make sure Salesforce software runs smoothly on Dell hardware. As far back as 2008, an article in ZDNet posited that Salesforce and Dell would make for a good combination.

But Dell went private in late 2013 in a $24.9 billion buyout by Michael Dell and the private equity firm Silver Lake Management. Dell and Silver Lake put about $5.6 billion of their own money into the deal with the rest financed by debt and cash from the company.

Dell took his company private to re-create it outside the glare of analysts, investors, and competitors and the demands of quarterly earnings. He’s taken to calling his company “the world’s biggest startup.”

So now is not the right time for a Dell-Salesforce deal as it’s unlikely Dell could come up with the money to pay for Salesforce or the time to integrate the companies effectively.

That is unless Dell and Benioff make another Fitbit wager with higher stakes. Salesforce’s investors, no doubt, would prefer a healthy price for their shares rather than a healthier CEO.

Tim Green has covered business, technology and science at newspapers and in higher education. At Hoover’s he covers computers and telecommunications.


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