Salesforce (CRM) Closes Demandware Acquisition For $2.8B

CRM platform provider, salesforce.com (NYSE:CRM) recently completed the acquisition of Demandware, Inc., a provider of software-as-a-service e-commerce solutions, for approximately $2.8 billion.

Salesforce made a purchase offer for all the outstanding shares of Demandware for $75.00 per share in cash. Salesforce had initiated the deal on Jun 1, 2016.

About Demandware

Headquartered in Burlington, MA, Demandware delivers support for websites, mobile applications and digital storefronts. It provides Demandware Commerce Center, Demandware LINK, Development Platform and Commerce Cloud. Its customers include multinational corporations, retailers, and branded consumer product manufacturers.

Synergies from the Deal

Per Marc Benioff, Chairman and CEO of Salesforce "With Demandware, Salesforce will be well positioned to deliver the future of commerce as part of our Customer Success Platform and create yet another billion-dollar cloud."

The digital marketing capability of Demandware will empower Salesforce to create a strong marketing platform. The deal will bring competitive advantage for Salesforce and will help the company to gain market share from traditional software providers such as Oracle Corp (NYSE:ORCL) and SAP SE (TO:SAP) , both of which already offer cloud-based e-commerce services.

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

This acquisition will make it easy for salesforce.com to tap the digital e-commerce marketing business. The company is looking forward to the global expansion opportunities that this acquisition is likely to provide.

According to the research firm, Gartner, worldwide spending on digital commerce platforms will grow over 14% annually, reaching $8.45 billion by 2020.

Therefore, we believe that this acquisition will help Salesforce gain significant market traction in this space.

Financial Impact of the Deal

Salesforce updated its guidance provided on May 18, 2016. Salesforce now projects second-quarter 2017 revenues between $2.005 billion and $2.025 (previously $2.005 billion and $2.015 billion), representing 23% to 24% year-over-year increase. The company expects non-GAAP earnings per share in the range of 21-22 cents (previously 24–25 cents).

The company now expects revenues in the range of $8.26 billion to $8.32 billion, up from the previous projection of $8.16 billion to $8.20, representing 24%–25% year-over-year increase. Similarly, non-GAAP earnings per share for fiscal 2017 are now projected to come between 93 cents and 95 cents compared with the earlier guidance of $1.00 and $1.02 per share.

Bottom Line

The completion of the transaction should enable the company to concentrate more on its core business, which should translate into new products and a more focused sales team.

Further, we expect Salesforce’s sustained focus on expanding its business through strategic acquisitions and investments to drive growth in the long run.

However, growth prospects have been rationalized to a considerable extent due to intensifying competition from International Business Machines (NYSE:IBM) .

Salesforce has a Zacks Rank #3 (Hold).