Salesforce will likely end its $5 billion buying spree this year, but its rivals won't

Business Insider | 1/10/2017 | Eugene Kim
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Salesforce famously went on a record shopping spree last year, spending roughly $5 billion on acquisitions.

Add that to its failed bid for Microsoft-LinkedIn's $26 billion deal, and its surprise interest in buying $12 billion Twitter, and Salesforce truly had one of the most remarkable binge-buying years in history.

Salesforce - Management - Brakes - Spending - Year

But it sounds like Salesforce management is finally planning to put the brakes on its spending this year, according to a note published by UBS's Brent Thill on Tuesday.

"M&A is still important, though any active, ongoing evaluations are focused on smaller tuck-ins for interesting tech (e.g., AI) or talented teams," Thill wrote about Salesforce's thinking after meeting with the company's leadership team. "Management stated it needs to digest the string of recent M&A, which we agree with."

Salesforce - Stock - Part - Investor - Concerns

Thill noted this is important because Salesforce stock has underperformed in 2016 in large part due to investor concerns around Salesforce going after another "mega-sized" acquisition. That would not only hurt Salesforce's cash position, but also signal it's having difficulty finding organic growth from existing products.

Still, Salesforce is likely going to continue to make smaller deals aimed at boosting its artificial intelligence capabilities, as Thill noted. The company's been making a strong push towards adding more AI features to its core products, and has recently hired hundreds of data scientists. Just last month, Salesforce made another acquisition in this space, when it bought a startup called Twin Prime.

Salesforce - Record - Buying - Pace - Year

Salesforce's record buying pace last year coincided with one of the most active M&A years in the software space.

As seen in the chart above, made by Evercore's Kirk Materne, the total enterprise value of the deals in 2016 was significantly higher than any of the previous four years. UBS's Thill also notes there were 58 deals worth more than $100 million last year, up 45% year-over-year from 2015.

And...
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