Salesforce.com To Acquire Radian6 for $326 Million in Cash and Stock
Salesforce.com has done another deal. This time it has agreed to pay $276 million in cash and $50 million in stock for Radian6, a social media monitoring outfit.
The two have a relationship already. Radian6 is building a key add-on application that Salesforce needs for Service Cloud 3, its big customer support product. But as competitors have pointed out, the Radian6 piece of Service Cloud won’t be ready until August. With monitoring social networks like Twitter and Facebook such a key aspect of Service Cloud, owning Radian6 will put Salesforce in better control of the trajectory of an important product.
Founded in 2006 and based in the Canadian city of
Halifax, Nova Scotia Fredericton, New Brunswick, Radian6 offers a cloud-based service to companies to monitor in real-time what people are saying about them and their products on Facebook, Twitter, YouTube and LinkedIn, as well as on blogs and Web forums. Its publicly disclosed list of customers includes AAA, Dell, General Electric, Kodak, Molson Coors, Pepsi, and UPS. Of those, Dell stands out as an enthusiastically public Salesforce customer. It’s backed by investments from a trio of Canadian venture capital firms: Summerhill Venture Partners, Brightspark Ventures, and BDC Venture Capital.
Salesforce says the deal will have no material impact on the current quarter. It expects to increase revenue in the second quarter by $5 million and to reduce per-share by 8 cents on a non-GAAP basis. In fiscal 2012, it expects its ownership of Radian6 to boost sales by $45 million to $50 million and to reduce non-GAAP EPS by 11 cents. Salesforce says it now expects fiscal 2012 revenue in the range of approximately $2.075 billion to $2.1 billion, and non-GAAP EPS $1.24 to $1.27.
The big question that Salesforce is going to get is about the price. Since Radian6 is privately held, I have no idea what its annual sales are, but people are going to wonder why Salesforce is paying so much, and how it determined Radian6’s valuation. The question will hearken back to its acquisition of Heroku late last year, when it paid about $250 million for a company which–if you believe what some people say–had revenue in the neighborhood of $2 million to $3 million. That would work out to a multiple of between 80 and 120 times the trailing year’s revenue.
Expect CEO Marc Benioff to face some tough questions about how Salesforce determined the price for this deal. There have also been some tough questions about other ways that Benioff is choosing to use his cash: In February The Wall Street Journal’s Brett Arends wondered aloud about aggressive hiring and a $278 million real estate purchase. As of the quarter ended January 31, Salesforce had about $497 million in combined cash and short-term investments. This deal is certainly going to make a dent.
For his part, Benioff has said that now is the time to get aggressive against competitors like Oracle and SAP. Salesforce shares are looking up in pre-market trading this morning. Investors, for the moment, seem to agree with him.