Specialist
Former Director, M&A Finance at Salesforce.com Inc
Agenda
- Salesforce's (NYSE: CRM) M&A approach – completed deals, highlighting Slack, plus new transaction scenarios
- Costs and expenses management, including strategy for margin performance
- 1-3-year outlook for Salesforce and its deal-making and margins
Questions
1.
Salesforce completed its Slack acquisition on 21 July 2021, only a few weeks ago in what has commonly been characterised as the largest and most important SaaS M&A deal in history. What introductory comments would you give about Salesforce.com as it relates to M&A and margins?
2.
Can you elaborate on the linkage between Salesforce’s M&A and margins? You said M&A has typically been considered outside of the margin framework and you alluded to the pulling back of some related guidance relatively recently. Was M&A an overarching business strategy around identifying and executing opportunities during your time at the company, or was M&A more opportunistic?
3.
To what extent do you think Salesforce’s interest in LinkedIn as an asset five years ago has influenced the company’s M&A activity? Salesforce’s LinkedIn interest was not executed [see LinkedIn – Evolution from a Professional Social Network & Competitive Outlook – 5 August 2021] but could have caused the management team to be more proactive and demonstrative in its deals. Is that a fair characterisation? The upswing in deal- making is notable – Demandware was acquired for USD 2.8bn around five years ago, followed by MuleSoft, Tableau and now Slack. Do you think the LinkedIn episode impacted how the company pursues M&A?
4.
You highlighted how Salesforce has historically approached and pursued M&A transactions, but what specific criteria should we note around larger transactions? What KPIs did the company focus on to establish and deliver its M&A framework?
5.
What do you make of Glassdoor scores for the CEO and whether employees would recommend working at Salesforce? This is one way to potentially quantify the company culture.
6.
What is your assessment of Salesforce’s Slack transaction? People seem to be asking why Salesforce would pursue Slack with an offer that was announced with an enterprise value of USD 28bn – the largest deal the company has ever done. How do you think it is prepared to execute on that transaction?
7.
Can you outline Salesforce’s margin profile? Its margins are lower vs peers, although you noted that some of the perceived peers might be older companies that had the opportunity to pivot more to a profitability vs growth model. Even compared to other SaaS-type companies, Salesforce’s margins are lower than might be expected. Some might point to the very high percentage of sales and marketing as it pertains to revenue, which has been 44-46% annually over the last five years. What is your margin outlook now that the Slack deal is complete?
8.
Salesforce was founded in 1999 and Adobe was in the early 1980s, yet Adobe is far more profitable while the growth discrepancies don’t seem very significant. Does the trade-off make sense? Aside from the sales and marketing organisation, you alluded to the verticalisation and self-service, but those are in process. What would you highlight as additional cost of revenue or OPEX opportunities? What could help the company to drive significant margin expansion or margin support?
9.
Can you elaborate on how Salesforce may have recognised the significant benefits related to coronavirus and the reined-in or non-existent T&E [travel and expense]? People might be sceptical when a company has a 20-plus-year history of being positioned, operating and spending in a certain way. Has the pandemic been a watershed moment for how Salesforce thinks about spending?
10.
What about cost of revenue and the various components such as distribution, support and professional services? Are there any obvious or potential opportunities to note?
11.
You said verticalisation could be beneficial for OPEX but what about for cost of revenue? Salesforce acquired Vlocity but could the company’s focus to offer more customisation across verticals add pressure to the gross margin due to the extra development and working with partners on specialised sales?
12.
People are naturally wondering how Salesforce CFO Amy Weaver will put her stamp on the financial priorities of the company, especially given the backdrop and pressure since the Slack deal was announced in December 2020. Wh
13.
What’s your 1-3-year M&A outlook for Salesforce? You mentioned that even though this huge Slack acquisition is complete, there’s a lot of work still to be done and you don’t expect Salesforce to slow down on M&A. What should we monitor and expect with margins in the near term, given the changes, opportunities and new leadership we’ve discussed?
