Salesforce Buyout: My Speculation

If you are reading this you don’t need to be directed to an article explaining what happened: Bloomberg said that (somehow) it leaked that Salesforce had retained investment bankers to help them evaluate a potential acquisition or buyout.

Of course, this meant it was open season for everyone to add fuel to the fire, blood to the feeding frenzy, or — whatever else you add to something else to make it more intense.

Of course, these are all speculations – so I decided to add my 0.0015 drachmas to the affair and add my speculation.

Caveat: unlikely I can add a name to this that has not been mentioned (and that has a chance to happen).  

Caveat2: I am not privileged to any information that is not public – so take it for what it is… pure speculation.

Caveat3: you still reading?  Good… here we go.

Scenario 1: The PR Confabulation

It would be unfair or illogical to assume that SFDC has not had its fair share of M&A over the years – both before and after going public.  It would also be unfair to Marc Benioff and its board to say that any of those attempts had more than a passable chance at becoming reality.

Why mention the M&A attempt and the search for advisers this time around?

Some people out there are speculating that is part of a PR effort to shore up the value of SFDC and to promote Marc Benioff’s name before a commitment to start a career in politics.  Some people infer that this time is the right price / contender combination to make it a sizable event that must be reported before it leaks (you know how fast things leak in SF and Silicon Valley – see Yammer/MSFT for reference).

While there is a certain, minor, potential for this to be true I cannot see a PR campaign being made out of this.  True, Mr. Benioff has been more cozy in taking political positions lately and the remarkable coverage of all the philanthropic efforts he takes part of is growing – but I don’t think he needs this to shore up his name – or his company name.

As I discussed yesterday with a well-known CEO of a competitor – everybody in the known world either has or is considering having an instance of SFDC software in their company.  They are well known.

Chance of this scenario being the one: less than 5 percent (there are some crazy PR people out there, after all)

Scenario 2: All’s Well That Ends Well

With due apologies to Murphy Brown writers (look it up,  trust me) nothing will happen at the end.

As I said before, many talks have happened and many offers have been made – and this may be the most logical, or (as some say) predicted one, or closest to the mark, or even the only one that the board would seriously consider… but that means it means to be made public to minimize the carnage at a later time for someone’s stock or private cash stash.

Independently of that, nothing’s going to happen – but its a significant possibility that must be advertised or leaked or whatever was done to it.

Chance of this scenario being the one: less than 10 percent 

Scenario 3: Everybody Needs Somebody (sing it!)

There is a not-zero possibility that an acquisition is going to happen (and given SFDC’s inability to keep a secret in its history – trust me on this) and they will be acquired.

But whom?

Plenty of speculation has already happened in the Internetz and the Twitterz – will let you find it.  My take? Glad you asked.

Three potential suitors (and some not-so-potential) in order of likelihood:

IBM – yes, those guys.

Their businesses has been shrinking and they need a way to get into the cloud.  Bad.  In spite of whatever magic mushrooms they consume to say their cloud businesses are near $15BB – they are not a player in cloud.  This will give them “cloud creed” and an incredible entry point into enterprise software.  It will also allow them to take a $5-6BB business and easily double it over the next couple of years by letting their consulting and outsourcing LOB go at it.

There is the question that emerges quickly here, given their recent relationship, what about SugarCRM?

When the relationship between them was first announced I had the chance to talk to an IBM executive about that potential.  He said, paraphrasing, that IBM does not make acquisitions that yield less than  billion dollars in return – and they could not see SugarCRM getting to that level.

Should I remark that Salesforce is already there?  And then many times over?

There is a lot of upside for IBM to enter this market with this acquisition… only downfall? they would need to cut through the many layers of bureaucracy to make the right people agree.  And any IBMer would agree that is not a small task (the smart joke would be that they wanted to acquire SFDC when they turned $1BB in revenues but just now they were able to get the right approvals; hehehe – I am not smart humor).

Oracle – Yes, Benioff’s former boss and fist investor (well, not the company but the chairman) and a vendor with a desperate need for “cloud creed”.

In spite of their marketing prowess, Oracle has nothing that resembles a modern cloud product.  They bought old, outdated, and (pardon the french) crappy software and never really updated or improved it.  The customer attrition rate at some of the properties the acquired has crossed the 50% range (meaning that more than half the customers at the time of the acquisitions are already gone) and the revenues they expected are nowhere near what they should’ve been.

OMG could they use some cloud creed.  Quickly being left behind and without even a simple sleight-of-hand like HANA is for SAP they need to make a statement.

The rumor / conspiracy theory states that when Benioff left Oracle Larry made a pact that he would acquire SFDC at a later time for Marc to come back as CEO.  If true, and the likelihood is minuscule, what a master plan (as someone said earlier on twitter)! To plan to lay low for 15 years like a Enterprise Software Disruption Sleeper Cell and pounce at the right moment (when Larry wants to retire).  Incredible and very, very difficult to pull off.

If you seriously consider this to be possible you have short term memory (or lapses in memory).  Oracle has, by any count, a sizable command of the CRM market.  Remember: they acquired PeopleSoft, JD Edwards, and (fanfare here) Siebel – the King of CRM.  By magic and marketing they lost very few Siebel customers over the years and they have done a good marketing effort at keeping them past two years.

The part where your memory may not work well – the FTC investigated (and I do mean investigated) that deal in detail and barely, barely concluded there was no collusion or monopoly at that time.  At that time.

With the changes in market share and the sizable command SFDC has of the market? Highly unlikely that would happen.  Then again, I am not the FTC (although for the record, when everyone said it would not be allowed last time I said it would – and won some sizable bets in the process :)).

Microsoft – The partner.

With the recent partnership still fresh in some minds, there is a likelihood (and by market cap, a better suitor than the past two) but they are very gun-shy following their Yammer debacle (although there is some value in this deal – not so much on that one) and the ill-fit into the “one-Microsoft owning the world” strategy (unless they want to compete with Zoho.com – which frankly, I don’t see it) makes it hard to visualize.

Stranger things have happened, I did mention the Yammer acquisition – right?, but even then – unlikely that it is worth their time.

Then there is the issue of technical fit — we are not going there as far as integration of SFDC technology into MSFT technology.  Let’s leave that dog alone…

Others – Many

Cisco, Hewlett Packard, EMC, BMC, CA, Amazon (really?), Google (really??), and Apple (really??????????) and some others I can’t remember.

Yes, everyone needs to get into the cloud – and everyone needs to do this now (we can have the discussion about the obscene dollar amount allocated by organizations to “buy cloud” in the next two years in a separate post).

However, most of these people don’t have the capacity to absorb and grow the potential of SFDC.

Will not speculate more than that.

Your turn – what / who / why / when / and how do you think this ends?

 

 

13 thoughts on “Salesforce Buyout: My Speculation”

  1. IBM’s been building data centers, Salesforce leases. Ginny is smart, a tie up makes loads of sense.

    HP, similar to IBM, but gun shy after Autonomy and still distracted (more likely to buy Basho)

    Oracle, Ellison is checking out, should have purchased Blackberry–unbreakable database, unhackable phone. This might be the deal to pass the batten to Benioff.

    Google, enterprise apps not its DNA, but with huge cloud capacity and app gap, just like IBM. However Google Developer Groups program is by far the most capable around the world. Google can close the web app gap if they decide to https://developers.google.com/groups/

    1. I am sorry,

      I cannot see Amazon, Google, and Apple spending $75BB+ in a business that a) they have no business being in, and b) no understanding of whatsoever. They have shareholders to respond to (unlike HP with Autonomy, which was done when they had no shareholders… hehehe)

      I am very skeptic on ORCL – especially bc rumors are saying they did not make original bid. they will bid, i am sure, but not with a heart to win. original bidder (which has to be very serious for SFDC to acknowledge) has the advantage — no matter how much my peers want to romanticize Benioff coming back home to rule the world.

      1. 75B? That is not a premium, that is almost doubling their worth. Nobody would pay 75B for Salesforce

        1. company is their worth market cap (45-50BB depending on where the stock goes next few days) plus a standard premium (usually 30%) – that puts it at 60-65BB.

          if there is a bidding war, which was SFDC intention by making the offer public and retaining advisers, can easily go to 75BB. this is the commonly accepted value in discussions i have seen.

          i’ve even seen discussions putting their worth at 100BB+.

          in a market where a company with no revenue and no established customer base gets a 200-300BB valuation you are going to decry a company with revenue and established growth rates north of 35% for the past few years?

          this is valuation we are talking about, not based on revenues or anything – valuation is what people pay for potential.

          1. I guess you are right, but it sounds downright ridiculous to pay 75 billion for a company hardly justifies it’s 40 billion cap. I don’t have anything against SF, but trying to be objective. I mean this would be a huge loss for buyer’s end and the buyer being a huuuuge company they have to convince their board that paying 75 billion is a smart move. I somehow find it hard to believe board of Microsoft/Google/IBM would easily agree to such thing.

            60+ billion already makes it too big of a bite to swallow in my opinion.

  2. Great write-up Esteban. You stopped giving percentages though midway through, so I wonder what you think is the most likely scenario? Also, the one scenario you didn’t cover was the possibility that it’s SFDC that’s doing the acquiring. What are your thoughts there? Some have speculated Adobe, but I don’t see that. I think DemandWare would make a lot more sense.

    1. Great questions Scott,

      1. percentages, I assumed that given 2/3 percentages the other was going to be self-evident. It was 80% – but as time goes by from news explosion to material information being disclosed that is slowly decreasing. I would change percentages, this AM, to 10% PR move, 30% all goes away, and 60% likely of acquisition.

      As for the percentages for each of potential acquirers i mentioned: IBM has 50%, MSFT 30%, ORCL 20%. And those percentages are also changing.

      2. SFDC driving the acquisitions. That is always a possibility – but the news was that SFDC was retaining help to figure out bids coming in (and likely start a bidding war by interested partners). I think that SFDC is not done acquiring and the next stop for them is HCM to complete their weak announcement last week of HCM processes based on SF1.

      Thanks for reading and commenting.

  3. If SDFC drives the acquisition they’d best buy Workday for HCM plus it’s excellent platform. The Force.com platform, architected on lessons of failing to scale dot-com darling Commerce One 15 years on, lack ability to drive out costs compared with Google / Facebook scale. More reason Oracle won’t drive this, why buy your own limitations, unless you like dogfooding.

    1. My probability changed to Microsoft+Salesforce!!

      Neither Salesforce nor Microsoft has the penning pinching architecture to scale like Amazon / Google w/o further investment in an apps platform for very deep Cloud ERP.

      The Force.com architecture (still circa 2001) is an Oracle-on-Oracle database w/ Lucene reverse indexes providing growth for simpler CRM class apps, but not for un-throttled ERP. Dynamics on-premise apps needs a new architecture for Cloud ERP, scaling SaaS on SQL server with .NET 4.5.2 is fraught with stalls at web-scale concurrency.

      Very likely HBase which just reached 1.0 provides the database architecture for Salesforce and Microsoft, partnering makes loads of sense. There’s a huge ready market after the worlds top private equity firms–Apax, Vista, Golden Gate, Francisco Partners have acquired all the packaged ERP apps that Oracle hasn’t. But none of them have the platform to transform to Cloud ERP.

      However, the same HBase Apps case could be made for Google because it needs enterprise apps and is also architecturally underpinned by Big Table, so is Facebook w/ Cassandra. Micro+Force makes a bit more sense.

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