While many may not be surprised that a company like Salesforce would acquire an e-commerce company to flesh out the entire CRM functionality set (which includes sales, marketing, customer support/call center, e-commerce) as defined by firms like Gartner, the choice in targets is puzzling.
Salesforce competes more and more with vendors like SAP and Oracle (who acquired Hybris and ATG respectively to fill out their e-commerce gaps), but those mega-vendors have both deeper pockets, paid less for their acquisitions - oh, and they do a weird thing compared to Salesforce and Demandware - they MAKE MONEY.
Salesforce earns very little, or has unprofitable quarters, as it consistently "buys growth" rather than build profitable customer relationships (ironically, something it tells its customers its products are designed to do), and Demandware is hemorrhaging cash.
The story from Talkmarkets says it all - see the quote below. But all this begs the question: is "growth at all costs" too costly at the end of the day? As Salesforce looks to further win over the enterprise with wide-scoping, broad deals - the ability to reign in its cost to sale will be even higher. And a loss machine like Demandware isn't helping the cause at all, if not hurting it even more...
Acquisition Is A Misallocation Of Capital In a nutshell, Salesforce is paying $2.8 billion to acquire an unprofitable company (Demandware lost -$38 million in NOPAT in the last twelve months). The deal generates an ROIC of -1%, which is lower than Salesforce’s 2% ROIC and well below the company’s 9% weighted average cost of capital (WACC). To justify paying $75/share, Salesforce would need, at a minimum, Demandware’s NOPAT (assuming no capex) to be $257 million or 9% of the $2.8 billion purchase price. At that level, the deal would earn Salesforce an ROIC equal to its WACC, which is still a low hurdle, but at least the deal would not destroy value.