Salesforce Buys Demandware for $2.8 Billion in Commerce Push

Salesforce Agrees to Buy Demandware for $2.8B
  • Represents biggest acquisition to date for Salesforce
  • CEO Benioff focused on expanding into specific industries

Salesforce.com Inc. is entering the e-commerce industry with a suite of cloud-based services via its biggest acquisition yet, bolstering competition with rivals Oracle Corp. and SAP SE.

Salesforce agreed to buy Demandware Inc., whose cloud-based software is used by companies to run their e-commerce websites and manage store operations, for about $2.8 billion. San Francisco-based Salesforce will start a tender offer for all outstanding Demandware shares for $75 each in cash, the companies said in a statement Wednesday. That’s a 56 percent premium over Demandware’s closing shares Tuesday.

Chief Executive Officer Marc Benioff -- in an ongoing challenge to the biggest players in business software -- is looking for new ways to propel sales after slower growth at Salesforce in recent years. With Demandware, Salesforce is pushing into a fast-growing market that’s forcing companies to rethink how they sell their products. E-commerce is expected to make up 12.5 percent of retail sales in the U.S. by 2020, up from less than 7 percent in 2014, according to EMarketer Inc.

"If you look at consumer spending, most of it is moving to e-commerce," said Abhey Lamba, an analyst at Mizuho Securities USA Inc. "This thing gives them another area of opportunity.”

Another Cloud

The acquisition creates a new product line for Salesforce and will allow the company to create “yet another billion-dollar cloud,” Benioff said.

The deal is expected to increase Salesforce’s revenue by about $100 million to $120 million in fiscal 2017. Operating margins for this year will expand after the deal, Chief Financial Officer Mark Hawkins said on a conference call to discuss the transaction. The transaction is expected to be completed by the end of July.

“The only blind spot we had in CRM was commerce,” Chief Product Officer Alex Dayon said, referring to customer relationship management. “The future of commerce is really with solutions like Demandware where not only do you provide personalized one-to-one shopping experience on your phone, on the web, but you’re also connecting the store into that experience.”

Demandware’s clients include L’Oreal SA and Marks & Spencer Group Plc.

New Products

Salesforce shares fell 0.2 percent to $83.52 at 11:30 a.m. in New York. They were up 6.8 percent this year through Tuesday, outpacing the 2.6 percent increase in the Standard & Poor’s 500 Index. Demandware surged 56 percent to $74.71.

For Benioff, it’s yet another acquisition to expand into new products. In 2014, the company bought RelateIQ, which makes tools to keep track of a salesperson’s interactions with customers, log that information, and offer reminders about when they should get back in contact. The company also spent more than $2 billion on ExactTarget in 2013, a company that specializes in e-mail marketing.

“While valuation multiples related to the transaction seem high to us, we believe the premium is justified,” Yun Kim, an analyst with Brean Capital LLC, said in a note regarding the deal. "The e-commerce market has long remained the missing product offering within its customer relationship management product portfolio."

Over the last three years, Salesforce has focused on gaining expertise in specific industries to better communicate with its customers, Chief Operating Officer Keith Block said. Demandware, which he said is a leader in the market for cloud-based commerce tools, allows Salesforce to better sell its customer-oriented products to the retail industry. Integrating Demandware’s platform will also allow Salesforce to better personalize its offerings.

“Our customers are telling us, ‘hey, this is a great extension and natural adjacency to our customer success platform,”’ he said. “We’re not just adding a new commerce cloud -- we’re also bringing world-class commerce capabilities to the customer success platform.”

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