M&A Alert—June 1, 2016
Salesforce acquires cloud-based e-commerce platform Demandware for $2.8B
Author: Steve Payne, Charlie Andre, Chris Risley
Transaction Size: $2.8B
On June 1, 2016, Salesforce.com (NYSE: CRM; market cap: $22.4B) entered into a definitive agreement to acquire cloud-based e-commerce platform, Demandware (NYSE: DWRE; market cap: $1.8B), for a total consideration of $2.8B. Salesforce is paying $75 per Demandware share, representing a 56 percent premium over its May 31st closing price.
Demandware is a software technology company that provides a cloud-based e-commerce platform and related services for retailers and brand manufacturers around the world. Their products allow retailers to create and operate e-commerce and mobile commerce sites, and to manage store operations. Demandware has over 330 customers including Adidas, Brooks Brothers and GoPro. Their main competitors are SAP, Digital River and Shopify.
Founded in 2004, Demandware is headquartered in Burlington, MA. Demandware received a total of $54.1mm in funding from Aruna Basnayake of Sunbridge Partners, Larry Bohn of Catalyst Partners and Michael Skok of North Bridge Partners. The company has LTM revenue of $254.1mm. It projects 2016 revenues between $295 million and $305 million, with a loss of $50 to $55mm. Shares of Demandware were above $75 as recently as July 2015, but yesterday, May 31, 2016, their stock closed at $47.99, at a market capitalization of $1.8B.
Salesforce is a global SaaS software company based in San Francisco, CA. Founded by Marc Benioff in 1999, Salesforce has traditionally provided a cloud-based CRM product. Now, Salesforce offers a portfolio of other cloud products including Sales Cloud, Service Cloud, Marketing Cloud, Community Cloud, and Analytics Cloud. Today it has over 100,000 customers. Salesforce’s stock last closed at $83.45 per share at a market capitalization of $56.5B, and it has LTM revenue of $7.1B.
Salesforce will acquire Demandware for $2.8B in an all-cash deal.
Transaction Value: $2.8B
TV/LTM Revenue Multiple 11.2x
Premium to 5/31 Closing Stock Price 56%
TV/2016 Revenue 9.3x-9.5x
Comparable transactions include Siris Capital Group’s acquisition of Digital River in October 2014 (2.2x Rev), SAP’s acquisition of Hybris in June 2013 (8.7x Rev) and eBay’s acquisition of Magento in March 2010 for $225mm (undisclosed revenue).
Salesforce’s SaaS portfolio is diverse and impressive, but e-commerce was a gap. With competitors like Oracle and SAP aggressively developing their e-commerce sectors, Salesforce needed an e-commerce offering to continue to be competitive. The acquisition of Demandware gives Salesforce a strong entry into e-commerce. As a result of this deal, Salesforce will now be able to offer cross-channel digital commerce, full back-end operations for retailers, and data/analytics for optimizing performance. As ExactTarget became the Salesforce Marketing Cloud, Demandware will be the core of the Salesforce Commerce Cloud.
Architect Partners’ Observations
-Demandware is Salesforce’s largest acquisition to date, surpassing the $2.5B paid for ExactTarget in 2013, as covered in our M&A alert.
-The fact that Salesforce paid a 56% premium over Demandware’s prior trading price indicates there may have been some competition for this key asset.
-Pacific Crest analyst Brendan Barnicle noted that Adobe is the next large marketing cloud player with an e-commerce gap, and suggests that Magento or Shopify might be a good fit.