In surprising news to me, Salesforce.com is going to buy ExactTarget, a digital marketing solutions company, for $2.5B. This is surprising because I've never heard of ExactTarget and can't believe a digital marketing software company could be worth that much money. I understand the business model and the growth potential in the industry, but to me the industry seems fragmented with few barriers to entry. These factors would weigh on me enough that from a financial standpoint, an acquistion of this magnitutde seems like a huge risk.
This is an all cash bid of $2.5B and a 50% premium to where the stock was trading yesterday, (so the markets only valued the company at $1.25B).
The combination of the two businesses makes sense, as they have similar business models. The article states, "Salesforce began as a provider of sales-automation software delivered via the cloud, and built itself into the leadership position in that category, but in recent years it has been directing its investment dollars to tack on a range of marketing software. Like Salesforce, ExactTarget sells its software directly to marketing departments. Its customers include Nike, Coca-Cola and Gap Inc., which use the software to plan and manage digital marketing campaigns and email and SMS communications"
This acquistion will add only "$120 million to $125 million in revenue" to Salesforce.com's fiscal 2014, which closes July 31.
Paying $2.5B for $125M in revenue?!?!?... Let's party like its 1999.
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