Companies today are taking on more technology management responsibilities than ever, fuelling M&A activity in the high-tech & software sectors.
Tech buyers have been active this year, seeking exposure to mission-critical subsectors such as artificial intelligence (Microsoft’s investment in OpenAI), cloud and data analytics, and cybersecurity. Private equity sponsors are re-entering the market to pursue tech acquisitions for specific opportunities.
Salesforce.com’s acquisition of MuleSoft
Salesforce made one of its most significant acquisitions ever when it acquired MuleSoft for $6.5 billion in cash and stock, an enormous deal at any cost. MuleSoft provides one of the world’s leading platforms for creating enterprise app networks connecting enterprise apps, data, and devices—whether in any cloud environment or on-premise location.
MuleSoft’s technology connects various software systems through application programming interfaces (APIs). Think of MuleSoft as the glue that holds legacy software together; its applications, such as ServiceNow and SAP, have proven essential in making legacy systems more nimble and agile.
Also, cloud technology enables companies to easily integrate third-party applications, which is invaluable for keeping up with emerging technologies and improving customer experiences. Unfortunately, this trend has led to many different tools from different vendors being developed, making it more challenging for businesses that wish to find a suitable solution.
Furthermore, companies that create these tools often compete to offer solutions, making it hard to select the ideal one for a particular business. Therefore, companies must identify which tools best meet their goals while expanding their business.
Salesforce’s high price for MuleSoft may require more than financial performance to ascertain its valuation. However, trailing multiples against comparable market figures may provide insight. For example, MuleSoft had a higher trailing multiple than Alteryx and Atlassian, which have smaller revenue bases.
Salesforce has attempted to rapidly integrate MuleSoft into its own company, which has led to difficulties in hiring and IT areas, according to former employees. Salesforce should take a more measured approach when integrating its acquisitions into existing systems and processes.
Salesforce.com’s acquisition of NetSuite
Salesforce CEO Marc Benioff has long stated that the company would never acquire back-office systems like ERP and CRM systems like NetSuite. Yet a recently leaked spreadsheet hacked from a board member’s email reveals multiple potential acquisition targets, including this NetSuite deal.
NetSuite is the world’s fastest-growing Enterprise Resource Planning (ERP) product, with annual revenues exceeding $9 billion and over 100,000 customers in 160+ countries. Established as NetLedger in 1998, it initially targeted businesses that had outgrown Intuit’s popular QuickBooks application. As it expanded, it now provides CRM and e-commerce software.
Over the past five years, NetSuite has dramatically intensified its efforts to serve small and mid-size business markets while further expanding into enterprise solutions. NetSuite’s annual growth has exceeded 30%.
One fascinating element of NetSuite’s acquisition by Oracle is that Evan Goldberg, its founder and CEO, and Zach Nelson, its COO, have previously worked at Oracle. Indeed, Larry Ellison was one of NetSuite’s initial major investors, putting up some $125 million as early as 2005!
Oracle’s acquisition of NetSuite will add to its cloud revenue, which currently stands at approximately one billion for its most recently declared quarter—representing 11% of total revenue. However, it seems unlikely that they would invest heavily in NetSuite in such a way that it could cannibalize sales of Oracle ERP and CRM applications.
NetSuite may continue developing its e-commerce software independently through acquisitions such as OrderMotion, Retail Anywhere, and Venda; Oracle may instead focus on its natively integrated offering, Oracle Commerce Cloud. This information remains only speculation as the boards of both companies will decide how best to proceed with this and future acquisitions.
Google’s acquisition of Cloudera
Cloudera, a Palo Alto company known for its big data and machine learning expertise since 2017, announced on Friday that KKR and Clayton Dubilier & Rice intend to acquire it for $5.3 billion, offering 24% above Cloudera’s closing price on Friday as well as pricing it slightly above what was valued during its initial public offering (IPO).
This merger comes at a time when major cloud providers continue to compete fiercely for enterprise data processing business. Each offers comprehensive product portfolios covering everything from data warehousing and machine learning to Cloudera’s existing capabilities, providing end-to-end analytics in multiple clouds. Through this merger, Cloudera has enough capital to aggressively push into software as a service, expanding on what already existed before creating an end-to-end analytics solution in multiclouds.
Cloudera’s recent acquisition, Verta, will also aid them in this regard. Their operational AI platform will expand upon Cloudera’s current toolbox, encompassing data project life cycles from collecting information through training machine learning models to production deployment. Both companies are working closely to integrate their platforms and will collaborate on future product roadmaps.
The transaction is expected to close by year-end and is subject to approval by Cloudera’s stockholders and other customary closing conditions. Morgan Stanley & Co LLC is a financial advisor, and Latham & Watkins LLP is a legal advisor. CD&R and KKR are advised by GCA Advisors, LLC, BofA Securities LLC, William Blair & Company LLC, Perella Weinberg Partners LP, Cowen, and J.P. Morgan, respectively.
This communication contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended. These statements relate to future events and are based on current expectations, estimates, projections, and projections about Cloudera’s business and industry and management’s beliefs regarding them. They also may rely on assumptions that could prove incorrect—for instance, assuming a transaction closes by the second half of 2021, as predicted here.
Salesforce.com’s acquisition of Pardot
As the world’s premier CRM provider, Salesforce is constantly searching for ways to expand its offerings and stay ahead of rival tech giants. Acquisitions provide one of the best strategies; by purchasing digital software in various business niches, Salesforce can provide its customers with functional products tailored to meet their needs and expectations.
With the acquisition of Pardot, Salesforce will be able to enhance its marketing offerings. Already equipped with tools for email marketing, lead nurturing, and marketing automation, Pardot Salesforce will add even more features tailored toward marketing and sales teams.
Salesforce’s acquisition of Pardot marks a significant step forward for the company, helping it appeal to more midmarket companies than before. However, larger global businesses still need some crucial gaps in offerings related to field service capabilities and MRM; therefore, they must invest time in building or buying additional capabilities before approaching larger markets.
The acquisition of Pardot also makes financial sense: Salesforce will be able to upsell existing marketing and CRM customers with commerce services they may not have needed before; by integrating it with Salesforce’s CRM platform and other cloud tools, Pardot could help increase revenues and boost its top line significantly.
Salesforce also recently acquired Heroku, a platform-as-a-service (PaaS) provider offering developers tools for building customer-oriented applications that securely integrate with Salesforce CRM data. This move will expand Salesforce’s presence in PaaS environments and strengthen its Marketing Cloud services.
As technology revolutionizes business operations, software providers such as Salesforce must keep pace with trends. Marketing is a key area for growth in many large organizations—something Salesforce is clearly targeting with its recent acquisitions of ExactTarget and Pardot and Marketo’s planned IPO.