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Salesforce making moves in the CRM industry with recent acquisition of Tableau

World’s #1 CRM and #1 analytics platform come together to supercharge customers’ digital transformations

Combination to accelerate Salesforce’s opportunity in the $1.8 trillion digital transformation space

On June 10th, 2019, Salesforce announced they would be acquiring Tableau for $15.7B in an all stock deal. Class A and Class B shares of Tableau would be converted to 1.103 shares of Salesforce common stock experiencing a near 50% premium. This will allow former Tableau owners to become shareholders of Salesforce upon completion of this transaction. This is Salesforce’s largest transaction to date, despite having a unique history of acquisitions. Marc Benioff, Chairman and Co-CEO of Salesforce, was the first speak on this event saying, “Together we can transform the way people understand not only their customers, but their whole world—delivering powerful AI-driven insights across all types of data and use cases for people of every skill level.”

https://www.zdnet.com/article/salesforce-and-tableau-how-they-can-better-serve-customers-together/

Salesforce background

Salesforce is a top developer and seller of Customer Relationship Management (CRM) software. They have over 150K customers, with top names such as Amazon Web Services, American Express, and Google. In recent years, Salesforce has been averaging a 30% annual increase in revenue as the company has added more applications to its basic CRM offerings.

Salesforce operates Sales Cloud, Service Cloud, Commerce Cloud, and Salesforce Customer 360.

All these systems help companies create and manage their branded destinations for customers. Salesforce Customer 360 is the software application that allows companies to connect these various applications together. Salesforce also has introduced Einstein, which is a cutting-edge AI technology, allowing companies to deliver a more unique and personalized customer experience. Co-CEO Keith Block said that, “Salesforce’s incredible success has always been based on anticipating the needs of our customers and providing them the solutions they need to grow their businesses”.

Technology trends

There are two ways to innovate; organically leveraging internal R&D and inorganically through partnering, M&A and corporate investment arms (Moorhead 2019)

Despite Salesforce being a key player in the CRM industry due to their ability to deliver internal, organic innovation delivered through a “SaaS” model, even Marc Benioff said “companies, to be competitive nowadays, have to also believe in inorganic innovation.” Timing plays a crucial role in the CRM industry as Salesforce recently cited a study from a researcher at IDC that estimates worldwide spending on digital transformation will reach upwards of $1.8 trillion by 2022.

Some people believe that Salesforce may have been feeling the increasing pressure of their pure “SaaS” approach in competition against Hybrid models. When inorganic growth begins to dominate a company’s innovation strategy, investors begin to worry about the company’s growth and future.

In the last twelve months, Salesforce has been disrupting the CRM market, spending over $21.8B on acquisitions. Last year, Salesforce purchased Mulesoft, a data integration system, for $6.5B. This year’s purchase of Tableau for $15.7B was in partly due to respond to Google’s Looker acquisition of $2.6B and Microsoft’s large dominance. Tableau will add the Hybrid element needed that Salesforce’s believes will keep them in line with their competition.

https://www.forbes.com/sites/patrickmoorhead/2019/06/18/salesforces-tableau-acquisition-admitting-organic-innovation-failure/#7dc947653ca2

Why did Salesforce by Tableau?

One of the reasons behind the Tableau acquisition was to expand Salesforce business away from a pure “SaaS” approach,  introducing a hybrid element to their core business. Tableau will still operate as a separate entity and be led by the current CEO Adam Selipsky and leadership team (Osborne 2019).

Tableau is expected to maintain the 20% sales growth they have been experiencing for the next few years. Salesforce is hoping that Tableau will continue to be the best at making data understandable to its wide range of customers and users: “From individuals and non-profits to government agencies and the Fortune 500, tens of thousands of customers around the world use Tableau to get rapid insights and make impactful, data-driven decisions” (Tableau 2019). Tableau’s current entourage of customers features names such as Charles Schwab, Southwest, Verizon, and Netflix.

Tableau will also further enhance Salesforce’s analytical capabilities. The combination of Salesforce’s strong CRM platform, with Tableau’s ability to visually represent data to its users will enable, “customers to accelerate innovation and make smarter decisions across every part of their business” (Benioff 2019).

Salesforce was already considered the smartest CRM software in the world for Einstein. Einstein ran a sophisticated AI system that allowed companies to deliver unique customer experiences, allowing users of Salesforce to reach their customers on every touchpoint. Einstein, in conjunction with Tableau, will allow Salesforce Customer 360 to offer a complete AI-Powered analytics platform.

https://www.zdnet.com/article/salesforces-15-7-billion-tableau-acquisition-everything-you-need-to-know/

Risk factors

Investors are worried about Salesforce moving away from its core business as they have recently been relying on inorganic growth through acquisitions. As Salesforce has generated is success thus far through internal growth and organic innovation, these recent transactions raise awareness as to whether Salesforce  will remain successful in their new endevours. The $21.8B spending also brings uncertainty to Salesforce’s implementations of Mule and Tableau, and how this will affect the overall CRM industry. Equity investors are especially worried that Salesforce’s earnings will be diluted.

Although IDC is estimating digital transformation will spend upwards $1.8 trillion by 2022, it is important to consider possible ramifications of economic downturns. With the current state of the North American economy showing signs of a potential recession, Salesforce’s revenue growth may be one of largest companies in the CRM industry to suffer. Salesforce’s operating results may not be accurately reflecting their immediate performance as they recognize revenue from subscription of their service, ultimately creating a lagging effect.

Concluding thoughts

Salesforce and Tableau are naturally complementary products. The internal processes, customer relationship management, and platform all offer opportunities to help Tableau grow their digital footprint in the market as a part of the whole Salesforce system. The strong momentum and early closure from this acquisition has enabled analysts from Wedbush to raise their expected revenue contribution estimates from Tableau to $550M-$600M after initially estimating $350M-$400M.

Although there are factors to consider that will hinder this transaction from going as planned, Salesforce has consistently demonstrated its ability to overdeliver since its inception in 1999. Marc Benioff, Chairman and Co-CEO of Salesforce has a clear vision in mind and investors and companies should be excited to witness this next step. Afterall, nobody can neglect the fact that the World’s #1 CRM and #1 analytics platform [have] come together to supercharge customers’ digital transformations.

Sources

https://www.tableau.com/about/press-releases/2019/salesforce-completes-acquisition-tableau

https://www.forbes.com/sites/patrickmoorhead/2019/06/18/salesforces-tableau-acquisition-admitting-organic-innovation-failure/#19319e253ca2

https://www.fool.com/investing/2019/06/11/google-makes-a-big-move-salesforce-goes-bigger.aspx

https://www.zdnet.com/article/salesforce-acquires-tableau-software-in-15-7-billion-deal/

https://techcrunch.com/2019/08/01/salesforce-closes-15-7b-tableau-deal/

https://searchcustomerexperience.techtarget.com/definition/Salesforce-Customer-360

(Analyst Reports)

Steve Koenig, Ahmad Khalil, Austin Williams, “Secular Tailwinds and Good Tableau Visibility”, August 23, 2019

Patrick Walravens, Joe Goodwin, “Salesforce.com (CRM) Seems Like Good Entry Point Based On Our Recent Industry Checks”, JMP Securities, October 7, 2019

(Bloomberg)

Bloomberg L.P. (2019). Company analysis for Salesforce. Retrieved from Bloomberg database

Brandon
Brandon
Brandon is a third year finance student at the UBC's Sauder School of Business. He is also an associate on the organizing team for the National Investment Banking Competition. Brandon spent his past summer interning at Mackenzie Investments. Outside of school, he enjoys reading books, playing basketball, competing in crossfit competitions, and fine dining.

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