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Salesforce to Acquire ExactTarget

Zacks Equity Research

The growth through acquisition continues for Salesforce.com (CRM). The company has recently entered into a definitive agreement to acquire the cloud marketing company, ExactTarget for approximately $2.5 billion.

As a result of this agreement, Salesforce.com will be making a purchase offer for all the shares of ExactTarget for $33.75 per share in cash. This transaction has already secured the approval of the board of directors of the companies concerned.

The news of the acquisition improved the share price of Excat Target by 53% above the closing price of $22.10, that the company witnessed this Monday, and reached a level of $33.70 when the trading day ended on Tuesday. We believe this is an expensive acquisition by Salesforce, as a result the dipped by 3.5% in Tuesday’s early trade.

The acquisition will add value to Salesforce’s existing portfolio. Not only will this acquisition enhance the process efficiency of both the companies, but it will also make the CRM platform more efficient in handling the sales, marketing and service function efficiently.

The digital marketing capability of ExactTarget will empower Salesforce to create a strong marketing platform throughout the email, social networking platform and the web. This acquisition boosts customers marketing effort through different medium such as email, mobile devices as well as the social media.

So, this acquisition will make it easy for Salesforce.com to tap the online marketing business. This is the largest acquisition that the company has made till date, and the eighth consecutive acquisition over a period of one year.

The deal got the approval of the board of both the companies and is expected to complete during the July quarter. Moreover, the ExactTarget acquisition will give Salesforce access to some 6000 customers of Buddy Media, which includes names like Coca-Cola, Gap Inc. (GPS) and Nike Inc. (NKE).

About a year ago, Salesforce completed the acquisition of Buddy Media, which strengthened the company’s social media platform.

Moreover, the company continues to win deals across its geographical reach as acquisitions have made it capable of offering new products and services. Overall, the company’s diverse cloud offerings and better IT spending prospects (according to Gartner) are positives.

Although the revenue for the company has increased, but the operating efficiency of the company declined as the company could not manage its expenses well. This apart, the growth prospects of Salesforce have been rationalized to a considerable extent by the renewed focus of tech giants, such as Dell Inc. (DELL) and Hewlett-Packard Co. (HPQ), in the cloud space.

In addition to this, the continued weakness in Europe, the economic challenges in Japan as well as the stiff competition offered by its peers keep us concerned.

Salesforce carries a Zacks Rank #3 (Hold).

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