Commoditization and Lofty Valuation Are The Reasons Salesforce.com, Inc. (CRM) Is Failing To Draw Suitors

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There are two major reasons Salesforce.com, Inc. (NYSE:CRM) isn’t attracting buyout offers. The first being fear that the company’s products have become commoditized. The other thing making things difficult for Salesforce to get a buyer is its lofty valuation, which is currently about $46.9 billion. SAP SE (ADR) (NYSE:SAP), Microsoft Corporation (NASDAQ:MSFT) and Oracle Corporation (NYSE:ORCL) are some of the companies that have been mentioned in connection with Salesforce buyout.

Salesforce.com, Inc. (NYSE:CRM)’s lofty valuation and commoditized offering are distractions to potential buyers. SAP’s CEO, Bill McDermott, believes that taking over Salesforce wouldn’t come as any strategic fit for the new owner. At best, the deal could just disrupt the industry, leading to gains for players like SAP as customers ditch the new organization that includes Salesforce.

Industry disruption

McDermott noted that the core customer relations management (CRM) has been commoditized. That explains why SAP even thinks that a rival buyout out Salesforce would be a better development because of the potential disruption such a move would create. If Salesforce and Oracle, for instance, join forces, many customers would reconsider their options and perhaps ditch the new organization for SAP.

It is true to some extent that CRM has become commoditized, but there are areas where commoditization is unlikely to happen anytime soon. Security is one area where major differences still exist in the CRM world and explains why McDermott’s assertion about Salesforce being commoditized isn’t the whole truth.

Salesforce’s customer base could also provide interesting inroads for a company like Microsoft or Oracle to further its alignment of enterprise products.

High valuation

Besides the issue of CRM commoditization, which is questionable considering areas like security, Salesforce.com, Inc. (NYSE:CRM)’s other undoing in the M&A world is its high valuation. The company is valued at more than $46.9 billion, making it pretty expensive for takeover. That is another thing that McDermott cited would keep potentially buyers away from Salesforce

For the likes of Microsoft, Oracle and International Business Machines Corp. (NYSE:IBM), the cost of acquiring Salesforce.com, Inc. (NYSE:CRM) may not be a major issue if the property can bolster their cloud campaigns and provide access to customers that the companies can continue to up sell their array of enterprise products. Nonetheless, the high valuation provides enormous risk to the acquirer.

Neha Gupta

Neha Gupta has been in the financial space for over six years now. Gupta earned her MBA degree from Symbiosis Centre of Distance Learning in 2009 and her passion for finance led her to pursue Chartered Financial Analyst (CFA) course. She has successfully completed Level II of her CFA. She is a veteran in article writing, which is depicted in her numerous pieces published on SeekingAlpha, Nextiphonenews, InsiderMonkey, MarketWatch, and Techinsider. Her crisp and eloquent writing finds its best place in Researchcows, where emphasis is given on developing rich content for various websites, products, business plans, trainings, and book writing.

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