Is Salesforce Overpaying for Demandware?

Demandware Inc. (NYSE: DWRE) shares skyrocketed on Wednesday following the announcement of its agreement to be acquired by Inc. (NYSE: CRM). The transaction is worth $2.8 billion — specifically, $75 per share of Demandware. The transaction is expected to close by the end of July 2016.

Prior to the merger premium of 56.3% being applied, Demandware had a market cap of roughly $1.75 billion at Tuesday’s closing price of $47.99. Compared to the 50- and 200-day moving averages of $42.91 and $46.82, Salesforce assessed premiums of 74.8% and 60.2%, respectively.

Consensus estimates from Thomson Reuters called for Demandware to have total revenues of $303.7 million in 2016 and revenues of $382.8 million for 2017.

Salesforce is giving this premium to Demandware, because this acquisition will extend the company’s Customer relationship management (CRM) leadership and position to capture this multibillion dollar digital commerce market with what will be the new Salesforce Commerce Cloud.

According to American research and advisory firm, Gartner, worldwide spending on digital commerce platforms is expected to grow at over 14% annually, reaching $8.544 billion by 2020.

Marc Benioff, chairman and CEO of Salesforce, commented:

Demandware is an amazing company—the global cloud leader in the multi-billion dollar digital commerce market. With Demandware, Salesforce will be well positioned to deliver the future of commerce as part of our Customer Success Platform and create yet another billion dollar cloud.

Tom Ebling, CEO of Demandware, added:

Demandware and Salesforce share the same passionate focus on customer success. Becoming part of Salesforce will accelerate our vision to empower the world’s leading brands with the most innovative digital commerce solutions that enable them to connect 1:1 with customers across any channel.

Shares of Salesforce were trading at $83.58 on Wednesday, with a consensus analyst price target of $96.29 and a 52-week trading range of $52.60 to $84.48.

Demandware shares up 56% at $74.75. The consensus price target is $53.85, and a 52-week trading range is $26.47 to $75.90.

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