Salesforce Buys Demandware And Pays A Sky-high Price For Growth

Good Thursday Morning and the tide goes wide.

Daylight – This morning, I am knee deep in M&A deals, but so is the entire market. I saw yesterday that M&A deals are down 4.3 percent this year – that is misleading as the decrease is mostly coming from the dramatic decline of the mega deals, since the Justice Department woke up and started enforcing the trust-busting laws. However, the small to midmarket deals are increasing with the larger companies actively participating. For example, Pfizer dropped its mega deal with Allergan, but has made two or three hard money buy offers that I know of (could be more) to smaller pharmaceutical companies since that time.

Here is a deal that is not necessarily a mega deal, but it is a big-time aggressive bet on growth – will acquire Demandware for $2.8 billion. Founder and CEO of Salesforce, Marc Benioff, needed to put some heat on its 800-pound gorilla competitor Oracle, but he paid through the nose to do it. His price was more than nine times Demandware’s estimated 2016 revenue. Demandware is basically cloud server software. Marc’s strategy is to get investors focused back on his growth instead of  profitability, which has been rare and bare on his P&L statement for the last 15 years. To pay this kind of money, I would surmise Benioff is looking at his sales pipeline over the next few quarters and thinking the organic growth is not coming or is definitely slowing. If he does nothing and comes up short on quarterly numbers, both analysts and investors will slay his stock price and his market cap can vanish by the billions in a day. It is a vicious cycle, and the only winner is Demandware – good for those guys – what a price! Dealb%k


M&A – Vista Equity Partners has agreed to acquire Marketo Inc., a San Mateo, Calif.-based provider of cloud-based engagement marketing software, for around $1.79 billion. The $35.25 per share deal represents a 64 percent premium to Marketo’s stock price on May 9. Fortune Term Sheet

IPO – Valvoline Inc., a Lexington, Ky.-based branded automotive lubricant company being spun out by Ashland Inc., has filed for a $100 million IPO. Fortune Term Sheet