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The latest acquisition of Salesforce.com Inc. once again shows that Marc Benioff's company has the ambition to become a larger software superpower and is willing to pay a high price for it.
The company announced Monday an agreement to purchase Tableau Software Inc. as part of a share exchange that values the young software publisher at $ 15.3 billion. Tableau software enables companies or their employees to confront data about their business, understand it through graphs or other visuals, and then use that information to make better business decisions. This is a rapidly growing field of enterprise software, with Microsoft Corp., Google, and others trying out what is usually called business intelligence.
Tableau has been a purported acquisition goal for some time, and in 2016, pirated documents from Salesforce's general manager showed Tableau a list of apparent business acquisition goals. Salesforce has paid a significantly higher price than in 2016. The purchase price represents a 42% premium over Friday's Stock price and equals approximately 9.4 times the figure. Estimated business chart for 2020. On a similar basis, the market value of Salesforce is 6.4. estimated earnings for its fiscal year ending in early 2021.
It is not unusual for Salesforce to pay good prices for contracts. A recent Bloomberg News article showed how Benioff – the co-founder and co-CEO – is making leaps in transaction logic. The company can say that it can afford to pay relatively high prices as it can spur the growth of the acquired companies by offering their software to the many Salesforce customers.
At first glance, the acquisition of Tableau represents a strange strategic fit. Tableau stands out from Salesforce by adopting more traditional enterprise software approaches. In addition, Salesforce typically sold software to sales and marketing departments within companies, and Tableau attracted many customers.
At a conference call Monday with stock market analysts, Benioff rightly pointed out that Salesforce was expanding its product offerings. He also said leaders wanted to turn to Salesforce to acquire more technologies they need to modernize their operations. Tableau is an additional essential asset that Salesforce will be able to offer for the transformation of the business.
This comment is a sign of Salesforce's ambitions in this Tableau contract and beyond. Salesforce wants to become a sprawling supermarket, like Microsoft or Oracle Corp., offering more types of technologies that businesses need. The acquisition of Tableau, combined with the purchase of the MuleSoft software integration company by Salesforce last year and its failure to acquire LinkedIn a few years ago, shows that Benioff and its are not afraid to invest more in technology.
However, this ambition means that Salesforce will become more and more of a leader and try to match portfolios with companies such as Microsoft, Amazon and other companies that give Salesforce the appearance of a relative pipsqueak. It is not easy to compete with the biggest titans of the software. And as Salesforce has shown by flirting several years ago with a possible takeover of Twitter Inc., the company's ambitions may not always be reasonable.
The inventory reaction to the Tableau case reflects the potential risks of Salesforce's ambition. Shares were down more than 4.5% on Monday morning. Tableau is Salesforce's largest transaction ever, both in total value and in market share. The deal, worth $ 15.3 billion, based on Friday's closing sale price of Salesforce, represents about 12% of the company's market capitalization.
Salesforce also told investors that buying Tableau would reduce Salesforce's adjusted profit margins. When Benioff was asked during the conference call for an update on margins, he referred to Salesforce's track record of consistently increasing cash flow and operating margins, based on adjusted figures from the society.
The timing may be a coincidence, but Google's parent company, Alphabet Inc., also announced last week the acquisition of a company offering software similar to Tableau's. Given the timing, we need to ask ourselves if Tableau and Looker, which Google is about to acquire, were on the market at the same time and Salesforce and Google took a look. Competitive bidding for Tableau might explain why the Salesforce purchase price is so high compared to where Tableau shares were closed on Friday.
Salesforce has always been inseparable from Benioff's vision, quirks, and mission. Shareholders have been richly rewarded because Salesforce is taxed as a fast-growing company driven by acquisitions and driven by its status as a vital technology for commercial services. The cost of Salesforce's ambitions is expensive, but strategic.
To contact the author of this story: Shira Ovide at [email protected]
To contact the editor responsible for this story: Daniel Niemi at [email protected]
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Shira Ovide is a Bloomberg Opinion columnist specializing in technology. She was previously a reporter on the Wall Street Journal.
© 2019 Bloomberg L.P.
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