Why Salesforce Needs An Independent, Confidential M&A Process

There is uncertainty regarding whether salesforce.com, inc. CRM will submit an offer for Twitter Inc TWTR, and Salesforce’s shares could remain volatile until there is more clarity, Barclays’ Raimo Lenschow said in a report. He maintained an Overweight rating on the company, with a price target of $89.

During Salesforce's investor Q&A session, CEO Marc Benioff provided insight into the company's M&A approach. While clearly being a part of Twitter’s M&A process, it is not clear whether Salesforce would actually place a bid, analyst Lenschow mentioned.

M&A Driving Force

CEO Benioff indicated that the rationale behind bidding for LinkedIn Corp LNKD was not the ownership of customer data, instead LinkedIn was an undervalued asset offering a healthy subscription stream, a model Salesforce knows well.

“Following this rationale, the Twitter deal makes even less sense to CRM as the Twitter ad-driven business model is somewhat foreign to a B2B software company, and the asset is generally viewed as being lower quality than LNKD,” Lenschow wrote.

Meaningfully Negative

The Twitter deal represents a number of dilution levels, all of which are substantial. There does not seem to be “enough leverageable EBITDA between the combined entities” to finance the deal through debt alone, while Salesforce can issue shares without shareholder approval for a potential transaction, the analyst stated.

Independent M&A Process

Management indicated that potential deals are constantly evaluated, although an offer is not made in most cases. This could be the case with Twitter in view of its deteriorating financials, mentioned. He added, “However, we also understand the company's frustration with the current process – a management team should be able to run an M&A process confidentially, which is clearly not the case at the moment.”

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