Salesforce, a leading global player in cloud-based software, announced on Thursday its intention to acquire Own Co., a startup known for its innovative data backup tools for cloud-based applications, in a $1.9 billion cash deal. The acquisition is set to close by the end of the quarter in January 2025, pending regulatory approval. This move represents Salesforce’s reentry into significant mergers and acquisitions after a strategic hiatus and signals its renewed focus on bolstering its cloud capabilities and expanding its suite of enterprise tools.
Background: A Return to Large-Scale Acquisitions
Salesforce’s decision to acquire Own Co. marks a significant shift for the company, which, less than two years ago, had distanced itself from large-scale acquisitions. In early 2023, Salesforce co-founder and CEO Marc Benioff announced the dissolution of the company’s mergers and acquisitions committee. This decision came after activist investors purchased stakes in Salesforce and raised concerns about its profitability, following the company’s substantial investments in high-cost acquisitions, such as MuleSoft and Slack, which had not yielded the expected growth.
Benioff’s latest move to acquire Own Co. is notable as it comes amid a challenging environment for software companies. The backdrop includes a decline in investor enthusiasm for cloud-based software, which had seen a surge in adoption during the Covid-19 pandemic. This downturn was exacerbated by central banks raising interest rates to combat inflation, prompting many money-losing cloud companies to prioritize profitability and reducing the market value of these companies, including Own Co., which had been valued at $3.35 billion in a 2021 funding round.
Who is Own Co., and Why is Salesforce Interested?
Own Co., formerly known as OwnBackup, specializes in tools for backing up and protecting data in cloud-based applications. Founded in 2015, the startup initially focused on helping Salesforce clients safeguard their cloud data. Over time, Own Co. diversified its offerings to work with other major enterprise software platforms, such as Microsoft Dynamics and ServiceNow, expanding its market reach and reducing its dependence on Salesforce’s ecosystem.
The company’s emphasis on data protection is particularly relevant in today’s digital landscape, where data breaches and data loss can have severe financial and reputational consequences for businesses. Own Co.’s tools help enterprises secure their cloud-based data, ensuring business continuity and regulatory compliance. As organizations increasingly rely on cloud applications for critical business functions, the need for robust data protection tools like those offered by Own Co. has grown.
For Salesforce, acquiring Own Co. represents an opportunity to strengthen its cloud services and enhance its value proposition to customers. The acquisition aligns with Salesforce’s strategy to expand its portfolio of data management tools, a move that could help attract and retain customers in a competitive market. Additionally, Own Co.’s existing relationships with major enterprise platforms like Microsoft Dynamics offer Salesforce an entry point into potential new markets and customer segments.
The Financial Implications of the Deal
Salesforce has emphasized that the acquisition of Own Co. will not impact its shareholder return initiatives. According to Salesforce, the deal will be accretive to free cash flow starting in the second year after closing. This suggests that Salesforce expects the acquisition to generate positive financial returns relatively quickly, in contrast to some of its earlier, more expensive acquisitions that had longer payback periods.
Salesforce’s confidence in the financial viability of this deal is likely rooted in the growing demand for data management solutions as companies continue to migrate their operations to the cloud. By acquiring Own Co., Salesforce can offer a more comprehensive suite of cloud solutions, potentially increasing cross-selling opportunities and driving revenue growth.
A Market Under Pressure: The Decline in Value for Cloud Software Companies
The reduced valuation of Own Co. highlights the broader challenges facing the cloud software industry. In 2020, as the Covid-19 pandemic forced businesses to adopt remote work policies, there was a surge in demand for cloud-based software solutions. However, by late 2021, investor sentiment towards cloud software began to cool. Rising inflation concerns prompted central banks to increase interest rates, leading to a shift in focus from growth to profitability for many cloud companies.
As a result, enterprises sought to consolidate their purchases, looking for multi-functional platforms that could help them streamline costs and simplify vendor management. Single-product companies, including startups and some publicly traded firms, faced increasing pressure. Several high-profile software companies, including Anaplan, Avalara, Coupa, Everbridge, Qualtrics, Sumo Logic, and Zendesk, chose to go private in response to these market dynamics.
Own Co., which had initially focused heavily on Salesforce clients, also sought to diversify its customer base and reduce its reliance on any single platform. In 2021, Own Co. announced plans to expand its offerings to work with Microsoft Dynamics, a direct competitor to Salesforce’s core applications, and later added support for ServiceNow. This diversification strategy aimed to attract a broader range of customers and increase revenue stability.
Salesforce’s Strategic Shifts: A Broader M&A Landscape
The acquisition of Own Co. is not an isolated event for Salesforce. In recent weeks, the company has also revealed plans to acquire smaller startups, such as PredictSpring, a retail engagement platform, and Tenyx, a conversational AI startup. These acquisitions, while smaller in scale, reflect Salesforce’s strategy to complement organic growth with selective inorganic investments that enhance its technological capabilities and expand its market reach.
During Salesforce’s May earnings call, Benioff reiterated the company’s commitment to a balanced approach to acquisitions. “We’re going to be looking at products organically, but, yes, we will continue to look at products inorganically,” Benioff told analysts. He emphasized that any large-scale acquisition would need to be accretive, meet key financial metrics, and not dilute the value delivered to customers.
This approach marks a clear shift from Salesforce’s previous strategy, which saw it making several high-profile acquisitions in a relatively short period. The earlier acquisitions, including MuleSoft for $6.5 billion in 2018 and Slack for $27.7 billion in 2020, were intended to expand Salesforce’s capabilities beyond customer relationship management (CRM) and into new areas like integration and enterprise collaboration. However, these deals faced scrutiny from investors concerned about their cost and uncertain return on investment.
Potential Regulatory Challenges and Market Reactions
While Salesforce aims to close the acquisition of Own Co. by January 2025, the deal is subject to regulatory approval. Given the growing scrutiny of technology mergers and acquisitions by regulators worldwide, Salesforce may face challenges in securing approval. However, the acquisition is less likely to attract intense scrutiny compared to larger, high-profile deals in the tech sector due to the relatively modest size of Own Co. and its existing ties to Salesforce.
The market reaction to the acquisition will also be closely watched. Investors are likely to evaluate the deal based on its potential to enhance Salesforce’s core offerings, drive cross-selling opportunities, and accelerate revenue growth. Salesforce’s assertion that the acquisition will be accretive to free cash flow by the second year suggests a level of confidence in the financial benefits of the deal.
Salesforce’s Broader Strategy and Future Outlook
The acquisition of Own Co. underscores Salesforce’s broader strategy to enhance its cloud capabilities and solidify its position as a leader in the enterprise software market. By acquiring Own Co., Salesforce aims to strengthen its data management offerings, an increasingly critical area as businesses prioritize data security and compliance in an evolving regulatory landscape.
Moreover, the acquisition aligns with Salesforce’s focus on building a comprehensive suite of cloud-based solutions that address the full spectrum of enterprise needs, from CRM and marketing automation to data analytics and cybersecurity. By integrating Own Co.’s technology into its existing product portfolio, Salesforce can offer customers a more seamless and integrated experience, enhancing its competitive position against other enterprise software providers like Microsoft, Oracle, and SAP.
Looking ahead, Salesforce is likely to continue pursuing strategic acquisitions to complement its organic growth initiatives. As Benioff has emphasized, future acquisitions will be carefully evaluated based on their financial impact, potential for customer value creation, and alignment with Salesforce’s long-term vision.
A Calculated Move in a Challenging Market
Salesforce’s decision to acquire Own Co. for $1.9 billion in cash represents a calculated move to strengthen its position in the cloud data management space. The acquisition reflects Salesforce’s renewed focus on strategic growth through both organic and inorganic means, while also demonstrating its commitment to delivering value to shareholders and customers.
As the cloud software market continues to evolve, Salesforce’s acquisition strategy will play a crucial role in shaping its future trajectory. By acquiring Own Co. and other smaller startups, Salesforce aims to enhance its technological capabilities, expand its market reach, and maintain its leadership in a highly competitive industry. Whether these moves will pay off in the long term remains to be seen, but for now, Salesforce is clearly positioning itself for growth in a rapidly changing digital landscape.