Salesforce to Buy ExactTarget for About $2.5 Billion

Salesforce.com Inc. (CRM), the largest maker of customer-management software, agreed to buy ExactTarget Inc. (ET) for about $2.5 billion, making its biggest acquisition ever to expand in online marketing.

The cash offer of $33.75 a share is 53 percent more than ExactTarget’s closing price yesterday, and shows Salesforce Chief Executive Officer Marc Benioff’s willingness to open the company’s coffers to add services that help businesses promote their wares on the Internet.

Benioff has spent at least $4 billion in five years on more than 40 deals, including ExactTarget as well as social-media marketing firms Buddy Media Inc. and Radian6 Technologies Inc. Salesforce is buying ExactTarget, which helps companies run advertising campaigns via e-mail, social networks and mobile devices, as Benioff strives to take market share from Oracle Corp. and SAP AG (SAP) in Web-based business applications and add more tools for corporate marketers who work outside sales and customer-service departments.

“He’s trying to bulk up with as many assets as he can to embrace and extend what the marketer wants to get done,” said Rob Tarkoff, CEO of Lithium Technologies Inc., a Salesforce competitor whose software helps companies build online communities of customers through social networks. “That’s where Marc has it right. He has put a major premium on investing in marketing technologies, and that’s a 10-year cycle.”

Photographer: David Paul Morris/Bloomberg

Chief Executive Officer Marc Benioff is expanding San Francisco-based Salesforce beyond customer-management tools running on the Web into programs for marketing via social-media websites. Close

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Photographer: David Paul Morris/Bloomberg

Chief Executive Officer Marc Benioff is expanding San Francisco-based Salesforce beyond customer-management tools running on the Web into programs for marketing via social-media websites.

‘Too Long’

With ExactTarget, Benioff is working to accelerate annual revenue gains from online-marketing companies Salesforce has bought. While sales from these acquired businesses are on track to reach about $100 million a year, Benioff wants to achieve $1 billion, he said last month.

“We couldn’t just keep making these small acquisitions -- that strategy was taking, honestly, too long,” Benioff said on a conference call with analysts today. “We need to work even harder to become No. 1 in marketing.”

While San Francisco-based Salesforce posted annual revenue increases exceeding 30 percent in the past two fiscal years, analysts predict growth will fall below that level in each of the next four years, according to data compiled by Bloomberg.

“Investors were bracing for a large deal,” Brent Thill, an analyst at UBS AG, wrote in a note to clients. “With a deal finally announced, the focus may shift to whether Salesforce can accelerate growth back to above 30 percent.”

Salesforce Shares

Salesforce fell 7.9 percent to $37.80 at the close in New York, leaving the shares down 10 percent for the year. ExactTarget advanced 52 percent to $33.69, and the deal also boosted stocks of other online-marketing companies -- Responsys Inc. rose 8.8 percent, while Constant Contact Inc. increased 5.1 percent.

In ExactTarget, Salesforce gains a company with almost 2,000 employees that helps businesses including Microsoft Corp., Toyota Motor Corp. and Molson Coors Brewing Co. deliver e-mail marketing campaigns based on customers’ likelihood to respond to them. The Indianapolis-based company was founded in 2000 by CEO Scott Dorsey, who will join Salesforce.

“We needed to get stronger in key areas like e-mail,” Benioff said. “We had some big pieces that were missing.”

Now, Benioff said he plans to take a break from deals for the next year to 18 months.

ExactTarget had its trading debut in March 2012, after scrapping its previous plan to go public in 2009 amid the financial crisis. While ExactTarget hasn’t reported a profit since 2008 and is forecast to post losses this year and next, the company’s revenue has increased every year since at least 2007, data compiled by Bloomberg show.

‘Very Competitive’

E-mail, mobile and social-media marketing technologies are drawing customers at a time when traditional means of reaching consumers -- newspaper, television and radio advertisements -- are becoming less effective. By 2015, consumer technology businesses will have switched a third of their traditional marketing budgets online, Salesforce said in a statement today, citing market researcher Gartner Inc.

The bidding for ExactTarget was “very competitive,” Benioff said.

ExactTarget may have been an attractive takeover target for other companies, including Oracle Corp. and Microsoft, Robert Breza, an analyst at RBC Capital Markets, said in an interview with Bloomberg News in October.

SAP, IBM

SAP, the biggest maker of business-management software, considered buying ExactTarget and then decided not to proceed, according to a person familiar with the matter who asked not to be named because the process was private. An SAP representative declined to comment. International Business Machines Corp. also looked at ExactTarget, according to another person with knowledge of the process. James Sciales, an IBM spokesman, declined to comment.

“This is an excellent move and fit for Salesforce.com, and we consider the price paid reasonable given ExactTarget’s leading market position and growth profile,” Nathan Schneiderman, an analyst at Roth Capital Partners, wrote in a research report today. He has a buy rating on the shares.

ExactTarget gets 80 percent of total revenue from e-mail, filling a “huge hole” in Salesforce’s current offerings, he said.

Salesforce’s ExactTarget purchase would be the biggest online-marketing takeover since 2008, when Google Inc. completed its acquisition of DoubleClick Inc., according to data compiled by Bloomberg. Salesforce is paying about 7.6 times revenue, compared with the median of 1.9 times revenue in a survey of more than 70 similar deals, the data show.

Earnings Impact

The ExactTarget acquisition will reduce fiscal second-quarter earnings by 5 cents a share, excluding some items, Salesforce said. Directors of both companies unanimously approved the transaction, which is expected to close by the end of July.

Bank of America Corp. advised Salesforce, while JPMorgan Chase & Co. provided financial guidance to ExactTarget.

The deal creates a $258.4 million one-day windfall for ExactTarget’s top venture backers, according to data compiled by Bloomberg. Greenspring Associates, a firm that invests in venture funds, gained $116.2 million today from the increase in value for its 10 million shares. Technology Crossover Ventures earned $81.6 million, while Battery Ventures’ holdings rose by $40.4 million. Scale Venture Partners saw its stake grow by $20.2 million.

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net; Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editors responsible for this story: Cecile Daurat at cdaurat@bloomberg.net; Tom Giles at tgiles5@bloomberg.net

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