Is Salesforce overpaying to acquire Demandware for $2.8 bn?

Salesforce Cloud
CRM software major Salesforce is set to acquire Demandware, a provider of cloud commerce solutions, in a deal valued at $2.8 billion.

The US-based Demandware is the global cloud leader in the digital commerce market. The global CRM vendor wants to grab Demandware because IT market research agency Gartner says that spending on digital commerce platforms is expected to grow at over 14 percent annually, reaching $8.544 billion by 2020.

IT industry analysts are speculating that is overpaying — around $2.8 billion — to buy Demandware. According to Thomson Reuters, Demandware is likely to report revenues of $303.7 million in 2016 and $382.8 million in 2017.

Salesforce in a statement said that the transaction is expected to close by the end of July 2016. The acquisition of Demandware is expected to increase Salesforce’s revenue by approximately $100 million to $120 million during FY 2017.

Prior to the merger premium of 56.3 percent being applied, Demandware’s market cap was roughly $1.75 billion at Tuesday’s closing price of $47.99. Compared to the 50- and 200-day moving averages of $42.91 and $46.82, Salesforce assessed premiums of 74.8 percent and 60.2 percent, respectively.

The strategy of Salesforce behind the multi-billion dollar acquisition of Demandware is aimed at extending the US company’s CRM leadership to capture the digital commerce market with the launch of the new Salesforce Commerce Cloud.

The US-based technology company noted that Salesforce Commerce Cloud will be an integral part of Salesforce’s Customer Success Platform, creating opportunities for companies to connect with their customers in new ways.

Demandware enables global brands including Design Within Reach, Lands’ End, L’Oreal and Marks & Spencer to deliver personalized experiences for consumers and power their commerce across the web, mobile, social and in the store.

Following the acquisition of Demandware, Salesforce has increased its revenue guidance for the full fiscal year 2017 to be in the range of $8.26 billion to $8.32 billion, an increase of 24 percent to 25 percent.

Baburajan K