Salesforce.com Acquires ExactTarget in $2.5 Billion Cash Deal in Strong Push Into Cloud Services

Tuesday morning, Salesforce.com CRM announced that it has entered a definitive agreement to acquire ExactTarget ET in an all cash deal worth $2.5 billion or $33.75 per ExactTarget share. ExactTarget shares rallied over 50 percent Tuesday on the news to close just shy of the take-over price.

Cloud Marketing Push

Analyst Kirk Materne from Evercore said the ExactTarget acquisition may, over the long term, put Salesforce.com on top of the emerging cloud-based marketing sector. He argued skeptics on the deal are likely to focus on the price and organic growth over the next few years, but assured strategic rationale is likely to outweigh these concerns over the long term.

"The Chief Marketing Officer is expected to spend more on technology than the Chief Investment Officer by 2017," said Marc Benioff, chairman and CEO, salesforce.com. "The addition of ExactTarget makes Salesforce the starting place for every company and puts salesforce.com in the pole position to capture this opportunity."

"ExactTarget's mission is to revolutionize how businesses connect with their consumers using data-driven digital marketing across all channels," said Scott Dorsey, ExactTarget chairman, chief executive officer and co-founder. "Salesforce.com's tremendous strength in social marketing, along with its leadership position in sales and service, not only will accelerate this vision, but also provide our customers with a powerful, integrated CRM platform to transform their end-to-end customer experience."

Details of the Offer

Under the terms of the transaction, salesforce.com will commence a tender offer to acquire all of the outstanding shares of ExactTarget for $33.75 per share in cash, subject to customary closing conditions. Following the successful completion of the tender offer, ExactTarget shares not tendered in the tender offer will be converted in a second step merger into the right to receive the same $33.75 per share in cash paid in the tender offer.

The transaction is set to close late in salesforce.com's second quarter, which ends July 31.

Financial Impact

Salesforce.com updated its quarterly and full fiscal year guidance in the release as well to account for the addition of ExactTarget. The acquisition is expected to reduce fiscal second quarter non-GAAP EPS by approximately $0.05 and is expected to reduce full fiscal year non-GAAP EPS by approximately $0.16. Non-GAAP EPS is expected to be $0.06-$0.07 in the second quarter and $0.31-$0.33 for the full year.

The all cash deal raises questions as the company only reported about $1.9 billion in cash on the balance sheet as of April 30. Assuming they were able to convert some or all of the approximately $500 million in accounts receivable to cash either through payment receipts or through short-term collateralized loans against those receivables, along with a small amount of other short-term investments, the company would be left with very little cash.

Market Impact

Piper Jaffray analyst Mark Murphy believes the $2.5 billion deal presents potential to transform the fragmented e-mail marketing segment into a “big opportunity” for Salesforce.com. On the other side of the trade, Roth Capital analyst Nathan Schneiderman suggested the deal may cause “medium-term problems” for Marketo MKTO.

Schneiderman pointed out Marketo currently receives 90 percent of its sales from the customer base of Salesforce.com. Without long-term written contract with Salesforce.com, ExactTarget presents a direct threat to Marketo's revenue intake.

ExactTarget shares rallied 52.44 percent in Tuesday trading to close at $33.69, just shy of the acquisition price. Salesforce.com shares dropped 7.89 percent but gained back 0.53 percent after-hours on the news.