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What’s the Rationale for the Demandware-Salesforce Merger?


Jun. 2 2016, Published 9:36 a.m. ET

Salesforce.com enters the e-commerce space

As we saw in the first article in this series, Salesforce.com (CRM) is buying Demandware (DWRE) in a $2.8 billion tender offer. This positions Salesforce.com into the e-commerce space with a cloud-based solutions provider and puts it in direct competition with other software giants like SAP and Oracle (ORCL). Salesforce.com has been struggling with slowing growth, and this transaction gives it exposure to the fast-growing e-commerce space, which has been growing at 12% annually. The global cloud computing business has been growing at 18%. Salesforce.com is paying a pretty penny for Demandware at 11 times its revenue. This gives a good indication of just how much potential growth Salesforce.com sees in the space.

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Management’s comments

“Demandware is an amazing company—the global cloud leader in the multi-billion dollar digital commerce market,” said Marc Benioff, Salesforce’s chair and CEO. “With Demandware, Salesforce will be well positioned to deliver the future of commerce as part of our Customer Success Platform and create yet another billion dollar cloud.”

“Demandware and Salesforce share the same passionate focus on customer success,” said Tom Ebling, the CEO of Demandware. “Becoming part of Salesforce will accelerate our vision to empower the world’s leading brands with the most innovative digital commerce solutions that enable them to connect 1:1 with customers across any channel.”

Impact on earnings

The transaction is expected to be dilutive to Salesforce’s 2017 earnings by about seven cents per share. It will add about $100 million to $120 million in revenues as well. Integration costs and transaction fees are expected to come in around $30 million.

Merger arbitrage resources

Other important merger spreads include the deal between Cigna (CI) and Anthem (ANTM) and KLA-Tencor (KLAC) and Lam Research (LRCX). For a primer on risk arbitrage investing, read Merger Arbitrage Must-Knows: A Key Guide for Investors.

Investors who are interested in trading in the tech sector can look at the iShares Global Technology ETF (IXN).


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