Bloomberg
San Francisco
An acquisition of Salesforce.com Inc would create disruption in the software market, Oracle Corp chief executive officer Safra Catz said last week at an event at her company’s headquarters.
Disruption is an understatement. Salesforce would give its owner an instant lead in customer relationship management software and greater depth in cloud computing. Aside from Oracle, the deal might make sense for SAP, International Business Machines Corp or Microsoft Corp, all of which have sought to expand sales of Web-based software and services.
SAP has already looked into the possibility of buying Salesforce, a person with knowledge of the matter said last week, although it wasn’t known whether there are currently any discussions.
“I think it will be interesting, definitely, to watch it play out,” Catz said in a discussion with reporters in Redwood City, California, on April 30. “It’ll cause a lot of disruption in that market.” Catz declined to comment on whether Oracle was interested in acquiring Salesforce, while saying the upheaval caused by a rival buying it would probably be good for her company.
Salesforce is working with financial advisers to help field takeover offers, after a more recent overture by a potential acquirer, people with knowledge of the matter said, without identifying potential buyers. Bankers may help rebuff any suitor or work out an eventual sale, one of the people said. Shares of Salesforce, which has a market value of about $48bn, jumped 12% on the news on April 29.
Representatives from IBM, Salesforce, Oracle and Microsoft declined to comment. Nicola Leske, a spokeswoman for SAP, said the company isn’t “considering or ever did consider acquiring Salesforce.”
Incorporating Salesforce into its product line would be easier for Oracle than other potential bidders, because Salesforce is built on Oracle’s own database technology. The deal would add $5bn to $6bn of sales to Oracle’s cloud portfolio, which now has an annualised revenue run rate of more than $2bn. The combination would make Oracle the largest CRM software company in the world, according to researcher Gartner Inc, and would place it in the ranks of the world’s leading software-as-a-service companies.
“A ‘game-changing’ acquisition of Salesforce.com would fit right into Oracle’s wheelhouse,” wrote Dan Ives, an analyst at FBR Capital Markets & Co, in a note sent to clients on Wednesday. “It could help accelerate the database stalwart’s painful cloud transition.”
Acquiring Salesforce would allow Oracle to expand its customer base and get them to buy more products — a boost the company needs, given that the money it rakes in from new software licences has been falling year-over-year for the past seven quarters. Still, an acquisition would be a departure for Oracle, which usually targets companies when they’re facing difficulties and seeks to avoid paying a premium.
Such an alliance would cap off a tumultuous 16-year relationship. Though Salesforce CEO Marc Benioff left Oracle to found Salesforce in 1999 with Larry Ellison’s blessing, the relationship ran hot and cold over the next decade, culminating in 2011 when Oracle canceled a Salesforce session at its annual OpenWorld conference.
Benioff responded by holding a speech in a nearby hotel, while, outside, Salesforce employees walked up and down a busy San Francisco street carrying signs saying “Too Radical for OpenWorld.” Inside, Ellison gave a keynote speech in which he referred to Salesforce as “the roach motel of clouds.”
Behind the scenes, relations warmed and in 2013 the companies announced a sweeping nine-year deal that saw Salesforce commit to using Oracle’s technology.
Microsoft, whose Windows software powers most of the world’s personal computers, is also a potential candidate for a bid. The Redmond, Washington-based company also has a contentious history with Salesforce. Before opting to build its own customer-relationship software in 2003, Microsoft considered acquiring Salesforce, Benioff told reporters at a breakfast meeting in Seattle in the early part of the last decade.
By 2005, Microsoft was promising to “give Salesforce a very effective run for their money” with its competing product. Benioff derided Microsoft in 2010 as the “Evil Empire.”
Satya Nadella’s ascent to Microsoft CEO last year gave Benioff a chance to change his mind, he said last May, when the two companies announced a wide-ranging deal to make Salesforce’s CRM programs available for Microsoft’s Windows and Windows Phone operating systems and enable them to work with Office 365 online-productivity software.
Microsoft would be able to sell Salesforce products using its distribution network to its worldwide customer base, said FBR’s Ives. There are also many ways to combine the two businesses to save money and allow Microsoft to cut costs in the future, he said. Nadella also used to run Microsoft’s customer relationship management business.
Microsoft is seeking to build a large cloud business and told analysts this week its goal was to have annualised corporate-cloud revenue of $20bn in the fiscal year that ends in June 2018.
“Nadella is making a big bet on the cloud and Salesforce would fit well strategically and financially into Microsoft’s cloud vision,” Ives said.
IBM could be interested in Salesforce to gain a swath of products the technology giant has been trying to build in-house: software and services to be delivered online, instead of installed on-site. CEO Ginni Rometty has struggled to shift the 104-year-old business to the era of cloud computing, recently taking more drastic measures reorganizing the company to have a designated cloud division.
So far, investors haven’t bought into the transformation’s progress. IBM’s shares are down more than 6% since Rometty took over as CEO in January 2012. A deal like a Salesforce takeover could be the bold move investors are waiting for.
Still, a Salesforce deal would be outside of IBM’s typical M&A playbook. When it comes to products and services, Big Blue has preferred to buy smaller companies, then pump out the offering through its own expansive sales force or group it with existing offerings. IBM’s biggest acquisition was in 2007 with its $4.5bn purchase of Cognos Inc, a maker of business-intelligence software.
A potential Salesforce takeover by Germany’s SAP would mark the third — and most dramatic — time CEO Bill McDermott has paid up to try to transform the company. SAP spent about $3.5bn to buy human-resources software maker SuccessFactors Inc in 2012 and last year ponied up $7.4bn to buy Concur Technologies Inc, whose tools let companies manage expenses.
Underscoring the potential interest from both sides, McDermott and Benioff held talks last year about possible strategic alliances between the two companies, people with knowledge of the matter said last week. While they discussed a possible takeover, it couldn’t be determined whether negotiations are continuing. Salesforce was prompted to work with financial advisers by a more recent overture from a company other than SAP, another person said.
SAP denied that it ever considered a deal to acquire Salesforce.
Buying Salesforce would instantly make SAP the go-to supplier of cloud computing tools for businesses. McDermott says he’s willing to sacrifice profitability to build his company’s online presence.
“To be a relevant company five to 10 years from now, do you think a company like SAP should change with the times?” he said in a January interview. “A margin rate is not a relevant metric.”
Still, McDermott in recent months has said the company is done with big acquisitions for a while. An SAP spokeswoman referred to those comments when asked about its interest in Salesforce.
Salesforce would also make a tough technical fit for SAP. Its flagship products are all designed to store information in Oracle’s database, a technology SAP is telling its customers to move away from. The latest version of SAP’s suite, called S/4, requires customers to run SAP’s own Hana database.