Among Microsoft and Google, who can do a tango with Salesforce.com?

Thomas George

Speculation of a possible merger has created a feeding frenzy on Salesforce's stock this week after reports about Salesforce.com approaching financial advisors and investment bankers to weigh options. Rumour mills never stopped spinning since then.

So, who could be interested in acquiring the company? There are a few names that are making rounds such as Oracle, SAP or IBM. Even a casual dinner with Satya Nadella puts Microsoft in the line of a prospective bidders of Salesforce.com as well, which is currently commanding a market capitalization of $50B upward in spite of not being profitable and lost close to $263M in 2014.

That again raises the question about the possible buyout of such an overvalued company? It, however, has an upside of 35 pc YoY growth in sales, customer base of 100K, 1 million developers, strong cash flow and huge Salesforce.com ecosystem prepared to disrupt the traditional CRM and marketing solutions space.

There are two ways to look at the question. First of all, which are the companies that will look at a merger and not an outright buy. Second, what will be the reason to pay such a premium for any company? Yes, of course an enviable product portfolio and marketplace shifts could entice Oracle or SAP to bid as they like to be the leaders in the cloud space. Let’s look at some of the potential suitors:

Oracle- It has the financial muscles to swing this with their recent  raising of $10B in debt and also with cash available with them close to $40B and it perfectly fits into the portfolio and the stack of offering it want to offer with some duplication and overlapping of their offerings.  On paper, they are the best suitor however, it is quite unlikely with Marc Benioff and his past experiences will not bring him to sell it off to Oracle and more over he has not yet done with building process of a world class company with an amazing platform and cloud offering under his belt which could humble traditional IT companies. The recent Oracle top management comments does not support a purchase or merger intent.

SAP- Today, every large software application company is trying to be known as a cloud company. SAP might dream for such an audacious step to enhance their offerings around Sales Force Automation(SFA), marketing and customer experience focus, but it’s too large a size to bite. SAP leadership also denied about any near term merger or acquisition.

IBM- The big blue has never been such an aggressive company to throw its hat into the ring for Salesforce.com. However, IBM is investing a lot on the cloud, analytics, mobility and security space. This will be a huge risk for IBM and highly dilutive for the company, in addition to overlapping offerings from IBM stable of solutions in marketing and customer experience space. It will be a major departure from their intended plan to deliver the promises made to their shareholders in term EPS goals. Moreover, it may not flourish in the IBM style of execution and practically it has only $8B cash in their books and hence only a chance of merger, which could be long drawn process for IBM’s pace of movement.

Amazon- With their AWS business being separately pursued and the first time Amazon talked about their cloud business revenue; which surprised many of us on their profitability in that business. They could be good contender but Jeff would not like to invest in an overpriced asset and add more to its losses.

This leaves us with only few potential and probable suitors like:

Google- They have considerably increased their focus on the enterprise business and with the advertising revenue showing some decline. This could be a risk mitigation move for Google and a stronger way to enter the enterprise place with wider range of enterprise offerings such as Sales Force Automation added with service cloud, chatter and platform stacks.

Microsoft- It makes sense for Microsoft to gun for  this as they are building their complete cloud stack and they have the required strategic partnership with Salesforce.com on integrating the solutions with their collaboration and office suite offerings. We saw Nokia- Microsoft strategic partnership followed an acquisition of Nokia device by later. The media assumed little too much on the dinner between two leader of partner organization and their mutual respect for each other in the light of the cloud focus and platform they both have in their life.

It will be interesting to see a big merger happening in the cloud space which can turn the fortune of two companies and create another big cloud player in the enterprise space. Marc Benioff and Salesforce.com may want to leverage on the price advantage its enjoying today and extend the value created in the last 16 years to its stakeholders.

But the big question is still hanging in the air. Is it a real search for a tango partner? Or a defensive move to avoid other pursuers from even thinking of partnering with it. We have to wait till we get the right answer....