By Harvey George, Niclas Hallberg and Samuli Karjalainen (LSE) - Date: 31/10/2019
Overview of the deal
Acquirer: Salesforce.com, Inc.
Target: ClickSoftware Technologies Ltd.
Estimated value: $1.35bn
Announcement date: 7th August 2019
Acquirer Advisors: N/A
Target Advisors: Goldman Sachs
In early August, Salesforce.com, a US-based SaaS company focusing on CRM, made public their intent to acquire ClickSoftware, a US-Israeli mobile workforce management solution provider, bringing to an end the rumours circulating in the media. The consideration of $1.35bn comprises of a mixture of cash and Salesforce common shares.
The deal, which closed in the beginning of October 2019, represents the next chapter in the long list of Salesforce acquisitions. The deal was announced just days after closing the Salesforce’s largest ever transaction, $16bn acquisition of data analytics and visualization firm Tableau.
Salesforce has historically been very active player in M&A, having completed 60+ acquisitions, of which 6 have been this year. Salesforce continues to be a pioneer of an inorganic growth strategy within the ERP industry. The fast pace of acquisitions and wide range of target company sectors set exceptional requirements for the product development and post-merger integration processes.
“Our mission has been clear since the beginning - to be the global leader in field service management and deliver significant value to our customers. Joining Salesforce provides a tremendous opportunity to accelerate this vision”
- Mark Cattini, CEO of ClickSoftware
Company Details (Acquirer - Salesforce)
Salesforce (NYSE:CRM) is a US-based international software corporation which provides Customer Resource Management (CRM) solutions for enterprises. Additionally, Salesforce sells data analytics, automation and other complementary software applications.
- Founded in 1999
- President and Co-CEO: Marc Benioff, Co-CEO: Keith Block
- Number of employees: 35,000
- Market Cap: $126.4bn - EV: $126.4bn
- LTM Revenue: $14.7bn - LTM EBITDA: $2.1bn
- LTM EV/Revenue: 8.6x - LTM EV/EBITDA: 60.2x
Company Details (Target - ClickSoftware)
ClickSoftware is US-Israeli enterprise software company providing resource management, task scheduling and customer service tool solutions. Following its delisting from Nasdaq in 2015, ClickSoftware has been owned by San Francisco-based private equity firm Francisco Partners.
- Founded in 1997
- CEO: Mark Cattini
- Number of employees: 800
Projections and Assumptions
Following the acquisition, ClickSoftware’s solutions will be integrated under the umbrella of ‘Service Cloud’, Salesforce’s division for customer service and support solutions. Service Cloud’s quarterly revenues surpassed the $1bn mark for the first time ever in July 2019, with a solid year-on-year growth figure of 22%. Continuing the growth of the segment is a major part of the rationale behind the deal for Salesforce.
On-site operations, or as they are referred to in the industry, field service operations, are in the heart of Service Cloud’s solutions. Field service operations comprise of installing, servicing and repairing systems and equipment on-site. Salesforce’s field service operations product offering is mainly comprised of Field Service Lightning, an offline-first mobile application that provides the mobile workforce with various solutions for real-time inventory, schedules and work orders. Click Field Service Edge, ClickSoftware’s equivalent of Field Service Lightning, is a cloud-based platform that can be tailored to meet each clients’ individual needs - the platform comes with four base editions, all supplemented by optional add-on features.
Combining the product offerings and creating new and improved solutions may increase customer satisfaction, retention and upsell opportunities, all highly important KPIs in the CRM market. The value-add of this strategic direction of developing more software in-house can, however, be called into question, especially when Salesforce’s history of using third-party developers is considered.
Long Term Upsides
The global market for field service management services is expected to hit $10bn by 2026, growing at a strong ‘18-’26 CAGR of 17.3%. The purchase of Clicksoftware provides an indication that Salesforce is indeed looking to capture an outsized portion of this market growth, signalling the potential employment of further inorganic growth strategy. Salesforce, largely regarded as the global leader in CRM, has been able to increase its revenue share of CRM applications measured by Internet Data Centers to 16.8% in comparison with 5.7% and 5.6% of Oracle and SAP, respectively.
When discussing the longer-term changes and trends in product and service landscape, AI is an important topic. Salesforce’s existing Field Service Lightning includes already some AI-utilizing features, such as image recognition software targeted to help on-site technicians. In ClickSoftware’s Click Field Service Edge, however, AI has a much more central role, and the platform’s wide range of capabilities illustrates that nowadays AI is much more than just the utilization of Google Maps historical data to optimize technician’s route to work site. Click Field Service Edge goes far beyond that by leveraging, for example, the Internet of Things to offer highly intelligent maintenance prediction. AI and machine learning have been in heart of Clicksoftware’s solutions since its very foundation and, consequently, the long history of expertise might just offer the crucial differentiating factor when looking for opportunities to beat SAP and Oracle in the longer term, especially in the highly lucrative manufacturing sector, where clients often require more specialized solutions.
Risks and Uncertainties
Financing of the deal has not presented a significant problem. A mixture of shares and cash has been used, indeed Salesforce had a cash position of over $3.5bn in July 2019.
In operational terms, the task of combining ClickSoftware’s offline-first Field Service Lighting application and ClickSoftware’s cloud-based Click Field Service Edge application is crucial for the long-term success of the transaction. Salesforce’s and ClickSoftware’s combined products could bring a significant amount of added value for Saleforce’s customers, but Salesforce has to be able to combine the security and reliability of its own offline products with the obvious advantages of cloud-based solutions and the cutting-edge technology of ClickSoftware. If combining the product offerings pose Salesforce with significant problems, Salesforce’s clients may find themselves with two overlapping applications both with their own legacy and, no doubt, their own drawbacks.
Finally, there is the question of revenue synergies, specifically the likelihood of realisation, from combined products. We question whether this effect would be substantial because we may have already seen a portion realised during the time when Salesforce licensed, for use in their products, ClickSoftware’s IP. If we are concerned about this then indeed the transaction could simply mean Salesforce is internalizing risks by bringing software developing in-house.
“Our acquisition of ClickSoftware will not only accelerate the growth of Service Cloud, but drive further innovation with Field Service Lightning to better meet the needs of our customers”
- Bill Patterson, EVP and GM of Salesforce Service Cloud
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