SaaS consolidation is near as the big guys add to war chest

SaaS consolidation is near as the big guys add to war chest

Summary: Consolidation looms in the software-as-a-service market as Salesforce.com, SuccessFactors and Taleo all bolster their war chests for potential acquisitions.

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Salesforce.com's move to raise $500 million in debt is enough to spark speculation about potential takeover targets. But when Salesforce.com's capital raise is put in context of other moves by SuccessFactors and Taleo, which raised $215 million and $130 million in stock offerings, respectively, it's clear that there's some consolidation brewing in the software-as-a-service market.

If you want to know the blueprint for raising cash and buying up rivals you don't have to look much farther than Taleo.

On Taleo's most recent earnings conference call, CEO Mike Gregoire said:

Our philosophy around acquisitions is very clear, we’ll look to enhance our competitive position in the talent management market through transactions that allow us to migrate our competitors’ customers to the Taleo platform, or we may do smaller deals where we can add domain expertise to our core platform and solution offering.

And as Gregoire told Bloomberg: It's hard to kill rival software companies so you might as well roll them up. Indeed, Taleo just closed the acquisition of Worldwide Acquisition in a $14 million deal that will extend the company's on-demand talent management suite.

Other big fish---notably Salesforce.com---aren't going to broadcast their plans for raising cash. However, analysts say they expect Salesforce.com to go shopping. Wedbush Securities analyst Michael Nemeroff said in a research note:

We believe Salesforce.com could use the proceeds for tuck-in acquisitions, although we can't completely rule out larger deals given the size of the offering and its potentially large cash balance.

The big question: What SaaS players are likely takeover targets? It's also unclear whether SaaS players will stay purely on-demand. Could Salesforce.com dabble in on-premise software a bit? And what are the out-of-the-box thinking acquisitions that are possible. With those questions in mind, here's a list of potential targets:

  • RightNow: If Salesforce.com really wants to sew up on-demand CRM it could target rivals that could become difficult. If Salesforce.com locked up CRM it would be free to expand into other categories. Wild-card: RightNow has a market cap slightly north of $535 million, which would qualify as more than just a tuck-in purchase.
  • Kronos: The company is a big dog in human capital management software, a space that's way crowded. Kronos also has a big enterprise footprint that would benefit Salesforce.com. Remember Salesforce.com's biggest challenge going forward is selling directly to the C-Suite. Today, Salesforce.com can sell to a lot of executives below that level---think corporate sales chiefs. Wild-card: Kronos isn't purely SaaS, but it's more into on-demand software than you'd think. Kronos also wouldn't come cheap with annual sales north of $700 million, but would transform Salesforce.com. It's more likely that Salesforce.com would gobble up smaller human capital management players like Salary.com, Workday and Accero.
  • SuccessFactors: Speaking of not cheap, SuccessFactors could also be a big bang type of deal for Salesforce.com. The irony would be that SuccessFactors, a specialist in employee productivity and performance, is also looking to go shopping. Wild-card: SuccessFactors would be a lot for Salesforce.com to swallow. Helpstream's Bob Warfield notes that SuccessFactors---and NetSuite for that matter---would be out of reach for Salesforce.com.

  • Jive Software or Lithium. Salesforce could take a bigger plunge into social software. These deals would qualify as a logical extension to the Salesforce.com core. Wild-card: It's not clear that these social app companies would want to sell out now. Then again, Salesforce.com could afford to pay up. These deals would show a willingness to dabble in on-premise options.
  • The tuck-in club: Warfield adds that Salesforce.com could gobble up a few marketing automation---think Eloqua or Marketo---and sales compensation---think Callidus---companies. Business intelligence outfits like PivotLink could be another interesting avenue for Salesforce.com to pursue.

Topics: Enterprise Software, Cloud

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3 comments
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  • Salesforce is savvy: Will likely deepen CRM and Support

    There has been much speculation as to what kinds of acquisition deals (if any) Salesforce.com will make.

    Given Salesforce.com's large customer base and proven engineering team, I'd argue that SFDC will likely seek acquisitions that either "move the dial" (in terms of customers) or provide some technology innovation in an area of interest. I find it highly likely that they'll dabble in non-SaaS companies, just goes against their philosophy and vision.

    So, my guess would be some sort of email marketing provider (Vertical Response, ExactTarget, etc.) or someone that's got more of the support software piece figured out. RNOW's a possibility, but a bit of a stretch.

    I don't think the marketing automation vendors are a high probability at this point: Not enough customers to be interesting yet.

    Should be an interesting year.
    DharmeshS
    • Who'd have thunk it?

      Well, if it's any consolation. Dharmesh, you were bang on the money.
      Salesforce.com just announced a $2.5 bn acquisition of ExactTarget and also added an analytic start-up EdgeSpring into their portfolio.
      However, it remains to be seen how this acquisition pans out, in terms of recovering from the debt.
      As far as their customer base is concerned, I think it's going to be a win-win situation for them.
      GauravBagdi
  • RE: SaaS consolidation is near as the big guys add to war chest

    Would love to see a Salesforce and SuccessFactors deal - Lars and Marc together on stage would be quite entertaining!
    Captain TCO