CRM's Hearty Appetite
As 2010 began, it seemed as if each day brought yet another CRM-related acquisition. With CRM players opening their wallets, it’s apparent that recessionary obstacles are diminishing. “There’s notable acceleration,” says Brenon Daly, a financial analyst with The 451 Group specializing in mergers and acquisitions (M&A). “It’s a general sentiment that there’s some stability and predictability coming back into the market.”
Activity has been ramping up for months, but not all of it has been friendly. Just ask CDC Software, a provider of enterprise software applications and services, which in January was coldly rebuffed in its effort to purchase customer experience management vendor Chordiant Software. Chordiant itself was no stranger to rejection, having made a failed bid for Kana Software just a month earlier. (In late December, private-equity firm Accel-KKR purchased all of Kana’s assets and liabilities.)
The spike in deals may be more conspicuous given 2009’s relative inactivity. “No one knew what ’09 would look like,” Daly says. “Companies were not forecasting—[and] if they were, it was for the first quarter.” There’s evidence of a kind of normalcy returning, he says, with companies more willing to take on the risk inherent in M&A. But even with intense due diligence, uncertainty remains.
“You’re never really sure what exactly you’re getting and how exactly that will fit,” Daly says. “You can make all the best plans and projections and outside goals, but in the end it’s still a gamble.” The fact that CRM players are gambling is a good sign, he adds—they’re out of crisis mode and beginning to embrace innovation and expansion strategies.
Daly says he wouldn’t be surprised if a lot of the activity we’ve seen lately stems from the backlog of deals tabled in 2009. Looking at things in a different light, China Martens, Daly’s 451 Group colleague, says the harshness of the recession may have turned high-quality purchases into low-price bargains. “There are so many start-ups that didn’t get funding,” she says. “[They] may be prime targets, or they may be doing all right but be thinking, ‘Now’s the time to align ourselves with somebody big because maybe we could expand quicker than we thought.’”
Kana, for one, was seen as having little choice but to put itself on the market. “It certainly makes sense for Kana to go private,” says Rebecca Wettemann, vice president of research with Nucleus Research. “[It’s] been increasingly challenged with a mature product that’s expensive to maintain—and we’ve seen customers move away from Kana because right now you want to be sure you’re with a company that’s going to be around.”
Chordiant certainly seems to think it’s going to be one of the companies still around—hence the rejection of CDC’s $105 million bid. “Thank God CDC didn’t buy Chordiant,” Wettemann says. “We still see Chordiant having a strong position in the marketplace, even though its product is a lot more mature.” She also says that CDC has had a sketchy track record with its acquisitions—more than a dozen in the last six years—and has been a “black hole” in terms of delivering value.
The American marketplace expects any potential acquirer to clearly identify the value proposition that would justify a bid, Wettemann says. In the case of e-commerce player ATG’s acquisition of chat provider InstantService, there’s a clear reason ATG would want to expand its service automation offering with live chat. Vendors making acquisitions are often looking to cross another item off their lists of “need-to-haves.”
Two such notable areas are service automation and social media, as evidenced not only by ATG/InstantService but also in RightNow’s purchase of social networking platform player HiveLive back in September 2009. Wettemann says the social media acquisitions that will make a difference are ones that are tightly integrated with CRM functionality. “Just because you buy them, doesn’t mean they’re integrated,” Wettemann points out. “Customers need to look carefully if it’s truly integrated or if it’s a standalone tool that requires additional support.”
Martens notes that CRM vendors now seem to be using social technologies as differentiators. It’s almost a game of who can make the biggest social purchase—or make the most noise with a social strategy. For example, RightNow has aggressively argued that HiveLive would become a third pillar of its business. In January, amid M&A activity by Jive Software, ATG, and Unica (see timeline, below), a lesser-known social media agency called Powered gobbled up three—yes, three—small social media vendors, each at an undisclosed price. Powered says the acquisitions are part of its plan to launch a full-service social media agency that will help companies navigate the complexity of the social Web. Similarly, Jive’s purchase of social media analytics firm Filtrbox underscores a rapidly increasing need for social tools—as well as a rising complexity in integration issues. Filtrbox is expected to aid Jive in the monitoring of social media—an area in which Martens says she expects to see additional consolidation. Among the most-attractive targets, she says, are social media monitoring firms Visible Technologies—one of CRM’s Rising Stars in 2009—and Radian6.
It looked as if Salesforce.com had opted for the build-don’t-buy approach for the social capability embodied by its Chatter product, unveiled at the company’s annual Dreamforce conference in November. Word leaked in mid-December, however, that Salesforce.com had acquired on-demand collaboration firm GroupSwim—though no official announcement was made, and the deal had not been confirmed at press time.
The implications are not yet clear, but Salesforce.com could hardly be called acquisitive in its first 10 years. (See CRM’s November 2009 issue for an in-depth look at the company’s history, including its mere five acquisitions.) The buzz over Salesforce.com’s recent $575 million debt offering, however, has led to much speculation over a potential shopping spree.
Martens says she’s heard rumors for some time now of Salesforce.com acquiring small-business email marketing player Constant Contact—and notes that marketing is a place where Salesforce.com has never fully spread its wings. (Her colleague, Daly, has suggested that iContact might be a more-tempting target, if only because it would allow Salesforce.com to trade in its “CRM” stock-ticker symbol for iContact’s software-as-a-service–friendly “SAAS.”) However, the case for building upon its service automation is also quite strong. “I also keep thinking Salesforce[.com] will do more things, like [its minority stake in] FinancialForce, and that [it] will go after more markets and use that model rather than acquire SuccessFactors,” Martens says. She notes, though, that it’s always hard to know which direction Salesforce.com will ultimately pursue.
Many acquisitions, Daly notes, are driven by financial concerns, especially with companies such as Oracle and SAP relying heavily on revenue from maintenance fees rather than from new installations. That partly explains CDC’s interest in Chordiant, he says. “As top-line growth slows, the financial performance—in particular, advantages available to companies of scale—outweigh the uniqueness of The Next Great Thing,” he says. “It’s become much more financially driven than technology-driven and that’s the byproduct of having been through a couple cycles now; it’s getting rather mature.”
So what to think of CRM’s running start in 2010? Well, there are no signs of breaking stride anytime soon.