Analyst Points to Further Evidence salesforce (CRM) is 'In Play'

After jumping 11.6% yesterday on takeover reports, salesforce.com (NYSE: CRM) is lower by over 3% Thursday as many are saying a deal is "unlikely." However, on the other side of the trade, MKM Partners analyst Kevin Buttigieg views yesterday's reports about the sale from Bloomberg as "credible."

"Not only is Bloomberg reputable, but also note that weeks ago, on April 1, CRM noted in an 8k filing that former CFO Graham Smith was delaying his retirement beyond the March 31 expected date to work on projects assigned by the CEO," Buttigieg said. "In our opinion, this could be why."

The analyst said the most likely potential acquirers from a strategic perspective are Oracle (NYSE: ORCL) and SAP (NYSE: SAP). "Both have on-premise businesses at risk from SaaS, mixed success with their own SaaS businesses, significant acquisition histories, and the size and access to financial resources to attempt such an acquisition (although we believe SAP would be much more of a stretch from a financial perspective)," the analyst said.

The analyst also discussed potential non-strategic suitors. "Microsoft (NASDAQ: MSFT) has far greater financial flexibility, but less strategic fit. CRM would likely be out of IBM's (NYSE: IBM) financial reach and risk appetite. Google (NASDAQ: GOOG) has the enterprise application ambition, financial resources, and a history of at least considering bold moves, and so remains a strong possibility."

On a potential price tag, Buttigieg said while valuation is difficult given the deal size is unprecedented, SaaS acquisitions have ranged from 6x-9x EV/Forward Sales, although the largest deal was $8 billion. Premium have been consistent around 20% though, regardless of multiple, so that might be a decent starting point, and would put CRM at $80/share. That said, given that "CRM price targets are already there, and any deal would most likely involve stock, and CRM may not be a willing seller, $80 would likely not be enough to sway CRM. $90 would represent about 9x EV/CY15E revenues, the high end of past deals, and would be more difficult for CRM to turn down, in our opinion."

If salesforce is acquired, attention will likely turn next to Workday (WDAY), NetSuite (N) and Ultimate (ULTI), the analyst said. "NetSuite though could only be acquired by ORCL given Larry Ellison’s ownership stake, so becomes a candidate only if it’s not ORCL that is pursuing CRM," he said. "There is no real peer to CRM, but its acquisition could accelerate the move toward a consolidation of the SaaS market around a complete suite."

The firm maintained a Buy rating and $80 price target on CRM.

For an analyst ratings summary and ratings history on salesforce.com click here. For more ratings news on salesforce.com click here.

Shares of salesforce.com closed at $74.65 yesterday.

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