Salesforce Moves Towards Digital Commerce Via $2.8 Bilion Acquisition

Salesforce (NYSE:CRM) may have made a name for itself by helping sales teams manage deals, but the cloud-based software provider is committed to growing well beyond its modest start.
On Wednesday, the company announced its intent to acquire Demandware (NYSE:DWRE), a provider of enterprise-class commerce solutions for retailers and branded manufacturers. Notably, the company’s Demandware Commerce offering allows customers to establish complex digital commerce solutions through its integration of a cloud platform and community and related services. The deal is valued at $2.8 billion dollars.

Deal details

Demandware is a public company (which IPOd back in 2012), so Salesforce is approaching the acquisition by commencing a tender offer for all outstanding shares of the company. Shares of Demandware stopped trading at $48 on Tuesday afternoon. Meanwhile, Salesforce has offered $75.00 per share in cash, placing a significant premium on Demandware’s current valuation. In general terms, this means that Salesforce has paid about $1 billion over market valuation to ensure that the acquisition goes through hitch free. TechCrunch reports that this deal is expected to close in Salesforce’s second quarter of 2017.

Developments for the cloud

The acquisition of Demandware is intended to help to create a new product line for Salesforce’s new cloud software, Commerce Cloud. This unit will connect the existing Demandware and Salesforce clients, as Salesforce customers will have new access to commerce management tools, while Demandware customers will be encouraged to use Salesforce’s marketing, analytics and sales applications. Forbes reports that this relationship is anticipated to bring in between $100 million to $120 million in additional revenue through Demandware for the rest of fiscal 2017.

M&A trend

Salesforce’s decision to go out and acquire Demandware, rather than build competing software itself, speaks to the strong tendency towards M&A activity in today’s market. Acquisitions are becoming an increasingly common way to break into new sectors.
With sophisticated e-commerce technology and an existing customer-base which includes L’Oreal (EPA:OR) and Marks & Spencer (LON:MKS) as customers, it’s no wonder that Salesforce was drawn to Demandware.This is the biggest acquisition in Salesforce’s history. The company also acquired ExactTarget in 2013 and RelateIQ in 2014, although neither surpassed Demandware’s $2.8 billion price tag.

For investors, this is a good reminder that the M&A market is red hot right now. Although tech IPOs are still lagging, there are a lot of deals being done in the space. All told, the market is shifting towards an M&A heavy orientation right now, but this shouldn’t act as a deterrent to investment. Rather, it’s a good reminder that valuable innovations are being created and the major cloud companies have their eyes on the prize.
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Securities Disclosure: I, Morag McGreevey, hold no direct investment interest in any company mentioned in this article.