IBM and Salesforce join rush for cloud computing assets with $4.5bn deals

The rush for big IT companies to buy cloud computing assets intensified yesterday as IBM and Salesforce each made multibillion-dollar acquisitions that highlight the sky-high valuations relatively unknown enterprise software companies can now command.

The deals are the latest moves in a land grab gripping the technology sector as big enterprise services companies look to supplement their in-house technology with cloud-based services.

IBM, which has made cloud computing a core part of its strategy, paid $2 billion for SoftLayer, a private company from Dallas, Texas, according to people familiar with the matter. Salesforce paid $2.5 billion for ExactTarget, a public company based in Indianapolis, Indiana.

Salesforce will pay $33.75 per share in cash in its biggest ever deal, a 53 per cent premium above ExactTarget’s closing price on Monday. ExactTarget earned $292 million in revenues in the last fiscal year.

As a private company Softlayer does not release quarterly figures but in the most recent full year it generated $400 million in annual revenues, say people familiar with the matter.

By paying five and nine times annual revenues for Softlayer and ExactTarget respectively, IBM and Salesforce got good deals compared with other, publicly traded software-as-a-service companies that trade at much higher multiples. Workday and Splunk, two newly listed enterprise technology companies, trade at 16 and 24 times forecast 2013 revenues.

Cloud computing has become more important to IBM, which has moved from selling PCs and servers to providing complete enterprise software solutions. IBM expects $7 billion in annual cloud revenue by 2016. SoftLayer, founded in 2005, has taken on $30 million in venture capital funding, according to Crunchbase, meaning its founders and investors could be in for a big payday if the $2 billion purchase price is confirmed. – (Copyright The Financial Times Limited 2013)