June 12, 2013

Salesforce.com Acquires ExactTarget for $2.5 Billion

On June 4, Salesforce.com announced its acquisition of leading email marketing firm ExactTarget for $2.5 billion in cash, or $33.75 a share. That’s a 53% premium to ExactTarget’s prior day closing price of $22.10, or 7.9x EV/Rev.  The deal is Salesforce.com’s largest acquisition yet, and comes on the heels of its $326 million acquisition of Radian 6 in 2011 and its $745 million acquisition of Buddy Media in October 2012.  By combining ExactTarget’s leading digital marketing capabilities with Salesforce.com’s leading sales, service and social marketing solutions, salesforce.com hopes to create a the world’s most powerful digital marketing platform across email, social, mobile and the web.

While the Buddy Media and Radian6 purchases got the firm some nice social monitoring and tracking tools, salesforce.com’s acquisition of ExactTarget provides the company with leading capabilities in email marketing and marketing automation.  There are some naysayers out there who say that “email is dead.”  We disagree, and apparently others, like Salesforce.com’s management team and Forrester Research, disagree as well.  According to Forrester, email marketing spending is expected to grow at a 10% CAGR to nearly $2.5 billion by 2016.  Another prized asset that Salesforce.com picks up by acquiring ExactTarget is Pardot –  one of the fasting growing marketing automation and lead nurturing companies – which ExactTarget acquired late last year.  Pardot helps small and mid-sized companies generate, track and rank sales leads, and their software also helps small firms develop, measure and analyze the cost-effectiveness of marketing campaigns.  Together, ExactTarget and Pardot, provide Salesforce.com with a powerful suite of tools to cross-sell to existing customers and introduce to new prospects.

By most any measure, M&A activity is robust for customer relationship management software (CRM) and, more specifically, marketing automation companies.  Over the last 24 months, we have tracked 153 deals in the CRM space, 42 of which were targets focused on marketing automation.  And valuations are high as well with median EV/Rev of 6.5x.  While these valuation levels may not be sustainable, we expect to see plenty more M&A activity in the CRM and marketing automation spaces in the near future.