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Ovum: Salesforce.com paid over the odds for ExactTarget

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7th Jun 2013
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Salesforce.com’s purchase of ExactTarget  may have bolstered its marketing offering but at $2.5bn, analyst firm Ovum has branded it one “expensive” deal.

The Cloud giant announced that it would be buying all of ExactTarget’s outstanding shares at $33.75 per share in cash, which saw the firm reap more than 50% on the company's stock closing price as a result.

Gerry Brown, senior digital marketing analyst at Ovum, explained: “ExactTarget’s revenue for year-end 31st December 2012 was $292m. It has never turned a profit, but its revenue growth has been high (c. 40% per annum) and its renewal rate is in the high 90s (%).

"The price was c. 8.6X revenue, which aligns with the multiple (X 9.2) Oracle paid for ExactTarget’s peer Eloqua in December 2012. The Eloqua acquisition set the benchmark. Likely also there was a bidding war (Adobe is another obvious acquirer) which fuelled the high price paid.

“The value of the company and its shares increased 52% as a result of the acquisition, so shareholders should be happy with the acquisition, especially as this price has been languishing close to the $22.50 mark of ExactTarget’s IPO in March 2012,” he said.

In terms of the product fit, Brown explained that as an already prominent partner of SFDC with a strong presence on Salesforce’s AppExchange, product integration with ExactTarget is already strong with an already well-established joint customer base.

“In addition, ExactTarget’s 2012 B2B sales lead management acquisition, Pardot, also provides seamless integrations with salesforce.com,” he said.

ExactTarget’s offer includes the multi-tenant SaaS platform called FUEL, and social marketing capabilities, for which they name Salesforce’s Buddy Media and Radian6 as competition. In these two areas the joint Salesforce and ExactTarget product offer will need to be consolidated.

“Outside these two areas Salesforce gains significant new product functionality which it has been sorely missing from the acquisition. Integration of the two Cloud-based models should not be too challenging, and expect integration to be largely completed by the end of 2013”.

And what about customer synergy and cultural fit? Brown believes that with both companies heavily US-centric, the acquisition does little to further salesforce’s position in high growth Asia and Latin-American markets but SFDC’s sales channel and business partners will be attractive to ExactTarget which currently does not have a strong partner channel, preferring to sell direct.

Culturally, he deemed the acquisition as “potentially challenging”.  Brown said: “ExactTarget’s Orange culture is full-on and in-your-face. It is a little different from SFDC’s smart dressed sales-oriented culture. Compromises will have to be made on both sides to ensure an exodus of key executives does not occur.”

So what does this all mean for enterprise customers and the wider vendor eco-system?

“Salesforce will shortly be able to offer enterprise customers a cloud-based marketing suite of relative completeness. Expect the suite to come head-to-head in competition with Adobe’s Marketing Cloud. A combined salesforce / ExactTarget offer should be available by Q4 2013 – the product integration required is minimal. 

"Expect aggressive pricing and for this acquisition to be the centrepiece for Salesforce’s new ‘Customer Company’ branding, which will have Marc Benioff’s full attention and support in the Dreamforce conference for the faithful in Q4 2013, which will attract 100,000+ attendees.”

He added that the deal is likely to be a catalyst for more market consolidation with Responsys, Silverpop, and Marketo high on the target list for those vendors lacking core marketing automation functionality, such as Adobe.

“Expect similar high prices to be paid for such vendors as the c. 9X revenue acquisition price point is likely to become standard,” he said.

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