OVUM Comments On SalesForce Acquiring ExactTarget

Last week, SalesForce acquired cloud marketing platform ExactTarget for 2.5 billion. Here’s why SalesForce pulled the trigger:

Salesforce.com’s acquisition of ExactTarget will further its mission of being the world’s leading CRM platform—one that enables companies to transform how they connect with their customers across sales, service, and marketing. By combining ExactTarget’s leading digital marketing capabilities with salesforce.com’s leading sales, service and social marketing solutions, salesforce.com will create a world-class marketing platform across email, social, mobile and the web.

The question is, how much of a fit is this for SalesForce? To answer that question, Gerry Brown, senior digital marketing analyst at Ovum analyzed the key points of the deal, what it means for enterprise customers and the vendor ecosystem.

Key points:

Price: “Expensive. ExactTarget’s revenue for year-end 31st December 2012 was $292m. It has never turned a profit, but its revenue growth has been high (c. 40% per annum) and its renewal rate is in the high 90s (%). The price was c. 8.6X revenue, which aligns with the multiple (X 9.2) Oracle paid for ExactTarget’s peer Eloqua in December 2012. The Eloqua acquisition set the benchmark. Likely also there was a bidding war (Adobe is another obvious acquirer) which fuelled the high price paid.

“The value of the company and its shares increased 52% as a result of the acquisition, so shareholders should be happy with the acquisition, especially as this price has been languishing close to the $22.50 mark of ExactTarget’s IPO in March 2012.” 

Product Fit: “Good. ExactTarget’s Interactive Marketing Hub is a Cloud / SaaS email-based multi-channel management solution for managing email, mobile, social, web site marketing channels and providing analytics across these channels. Exact Target is already a prominent partner of SFDC with a strong presence on Salesforce’s AppExchange, so product integration is already strong and there is already a well-established joint customer base. In addition, ExactTarget’s 2012 B2B sales lead management acquisition, Pardot, also provides seamless integrations with salesforce.com.

“ExactTarget’s offer includes the multi-tenant SaaS platform called FUEL, and social marketing capabilities, for which they name Salesforce’s Buddy Media and Radian6 as competition. In these two areas the joint Salesforce and ExactTarget product offer will need to be consolidated. Outside these two areas Salesforce gains significant new product functionality which it has been sorely missing from the acquisition. Integration of the two Cloud-based models should not be too challenging, and expect integration to be largely completed by the end of 2013”.

Customer Synergy: “Middle-ing. ExactTarget has 6,000 customers, but its enterprise footprint is limited. SFDC will sell ExactTarget’s product into their own considerable enterprise customer base. SFDC certainly adds credibility to ExactTarget’s proposition for the enterprise. However, both companies are heavily US-centric. Only 18% of Exact Target’s customer base is outside the US, and most of this is in the English-speaking nations of the UK and Australia. The acquisition does little to further salesforce’s position in high growth Asia and Latin-American markets. SFDC’s sales channel and business partners will be attractive to ExactTarget which currently does not have a strong partner channel, preferring to sell direct.”

Cultural Fit: “Potentially challenging. ExactTarget’s Orange culture is full-on and in-your-face. It is a little different from SFDC’s smart dressed sales-oriented culture. Compromises will have to be made on both sides to ensure an exodus of key executives does not occur.”

What it means for enterprise customers

“Salesforce will shortly be able to offer enterprise customers a cloud-based marketing suite of relative completeness. Expect the suite to come head-to-head in competition with Adobe’s Marketing Cloud. A combined salesforce / ExactTarget offer should be available by Q4 2013 – the product integration required is minimal. Expect aggressive pricing and for this acquisition to be the centrepiece for Salesforce’s new ‘Customer Company’ branding, which will have Marc Benioff’s full attention and support in the Dreamforce conference for the faithful in Q4 2013, which will attract 100,000+ attendees”.

What it means for the vendor eco-system

“Likely the catalyst for more market consolidation with Responsys, Silverpop, and Marketo high on the target list for those vendors lacking core marketing automation functionality, such as Adobe. Expect similar high prices to be paid for such vendors as the c. 9X revenue acquisition price point is likely to become standard.”

I think the net result is that we will have to watch this to see how this plays out given this analysis.

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