What's Salesforce (CRM) going to do? What's CEO Marc Benioff going to buy next?
In perhaps the wildest M&A story I've seen, a hack of board member Colin Powell's email actually produced a file showing some potential acquisition targets for the company.
It's pretty startling for multiple reasons. First is that Twitter (TWTR) isn't on the list, even as the stock was down at $14. All I can say is that Twitter's board must have been willing to sell itself after this list came out and that's the reason why it wasn't on the list, even as there are other companies mentioned that aren't for sale either.
There were 14 public companies on the list and I want very much to tell you what I think the possibilities might be after I have ruled some out right up front.
First, let's rule out the companies that have been acquired since the memo. Salesforce itself bought Demandware (DWRE) to further its e-commerce efforts. Second, Marketo (MKTO) , a marketing automation company, was purchased by Vista Partners. Another private equity firm, Thoma Bravo, bought Qlik (QLIK) , a data analytics company and frequent guest of Mad Money. NetSuite (N) , a cloud-based company that competes in the small and medium-sized business space with Salesforce.com, perhaps would have been a nice addition, but Oracle's (ORCL) bidding for it and Larry Ellison owns enough of it to block anything hostile.
Next to be dismissed, unless it's a friendly merger of equals, is Adobe (ADBE) , because the stock's value is bigger than Salesforce's. It's a natural but unlikely combination.
Two other companies that use Salesforce as a platform, Workday (WDAY) and Veeva Systems (VEEV) , would be somewhat antithetical to Salesforce's model. It hasn't wanted to vertically integrate into the financial and human resources silos of Workday or the life-sciences business of Veeva, even as Workday CEO Aneel Bushri is a great friend of Benioff's and Veeva's run by an old and beloved Salesforcer, Peter Gassner. Both companies had great quarters and are justifiably richly valued.
There are a couple of other companies mentioned, Box (BOX) and Zendesk (ZEN) , a storage company and a customer service business, that seemed to be ruled out by the notation, "CEO has no interest." I think you can take those off the table, too, because there's no way Benioff's going to do anything hostile.
Another, Tableau Software (DATA) , which reported a very soft quarter at the same time LinkedIn did and saw its stock similarly plummet, I think would be a bad fit because it's not really social, mobile or cloud-based, and those are imperatives for Salesforce.
ServiceNow's (NOW) on the list and that's an unbelievably good company, one that uses cloud-based technologies to improve workflow. We've had CEO Frank Slootman on and this is one of the best technology companies out there. But the $12 billion company has the highest P/E multiple of any company I follow, 120x earnings, and while I think that's temporarily inflated -- the earnings are coming on strong -- I think that multiple's tough for Benioff to follow. You own NOW because it's a great company, not for takeover, although I should add that there's a notation saying Salesforce would be meeting with ServiceNow in late May. Obviously, nothing's come of it at least to date, though.
That leaves two companies, HubSpot (HUBS) , a $1.8 billion company that does marketing and Salesforce automation, and one of my favorites, Pegasystems (PEGA) , a competitor of Salesforce that does mission-critical predictive marketing. This stock, which hit a 52-week high on speculation of a Salesforce bid after the leaked memo, to me makes the most sense of all the companies listed. It's not too big, $2.5 billion, it's very good at what it does, and it's nowhere as expensive as ServiceNow.
Now let's be clear. During the whole Twitter back-and-forth, Benioff repeatedly told me that he looks at everything and that he would buy something that would help his company grow but would not buy anything that would hurt shareholders, something that clearly ruled out Twitter when its stock ran to the mid-$20s.
Of these, I think Pegasystems would be the most logical, but you have to wonder that since this document is from six months ago, maybe it's been looked at and passed on. Still, it's a terrific parlor game, but one that's really pure speculation and therefore no reason to buy stock in any of these companies. Remember, I don't recommend stocks on a takeover basis, but fortunately the fundamentals of so many of these companies are great that I can't blame you for speculating in any of them.