Demandware Purchase Widens Reach Of Salesforce's Platform

SunTrust said the $2.8 billion acquisition of Demandware Inc DWRE widens the reach of salesforce.com, inc. CRM platform and provides potential long-term growth opportunity.

Salesforce would begin a tender offer for $75.00 per share, in cash, for all shares of Demandware, which provides cloud based commerce solutions with a focus on retailers, and branded manufacturers.

By buying Demandware, Salesforce will naturally extend its foothold into these key markets. In fact, Salesforce would leverage its strength in own marketing, sales and service cloud capabilities to offer solutions for digital commerce and point of sale, including order management and predictive intelligence capabilities.

"We believe that this acquisition expands the reach of Salesforce.com beyond its traditional focus on supporting the front end sales, service and marketing activities, into becoming a platform with much deeper reach into the enterprise," John Rizzuto wrote in a note.

Rizzuto, who has a Buy rating on Salesforce shares, noted the deal fits well with Salesforc's direction over the past couple of years where it has been focusing on larger transactions and a greater share of budget.

Rizzuto projects Demandware to contribute $120 million in revenues over all of fiscal 2017, and $383 million in fiscal 2018 (or little under 4 percent of revenues). The analyst also expects $50 million of write downs related to deferred and unbilled deferred revenues.

"As a result of $30m in transaction related costs, potential associated restructuring costs, and lower margins at Demandware, our F2017 non-GAAP EPS estimate declines by $0.07 to $0.93," Rizzuto added.

The analyst, however, raised his fiscal 2017 revenue view to $8.321 billion from $8.201 billion, while increasing the price target on the stock by $2 to $98.