Salesforce M&A in 2025: Top 10 Factors That Affect Valuations : Tom M
by: Tom M
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### Summary of Salesforce Mergers and Acquisitions (M&A) Insights The Salesforce ecosystem has seen a consistent interest in mergers and acquisitions (M&A), despite challenging economic conditions in recent years. Recently, there has been a resurgence in M&A activities, with notable acquisitions such as Synechron buying Cloobees and Salesforce acquiring Own Company. This uptick suggests a renewed confidence in the ecosystem's value. **Key Insights:** - The M&A market was robust from 2015 to 2019 but faced disruptions due to the pandemic in 2020. However, activity has picked up again in 2023. - In 2024, private equity firms shifted from being cautious to actively seeking opportunities, indicating a more optimistic outlook. - Alex MacKay from Tequity Advisors identifies ten key factors influencing valuations in the Salesforce ecosystem as we approach 2025: 1. **Year-Over-Year (YOY) Growth**: This remains crucial, but it's now part of a broader evaluation framework. 2. **Vertical Expertise**: Industry knowledge helps companies engage at higher levels within client organizations. 3. **EBITDA**: Earnings before interest, taxes, depreciation, and amortization are essential for valuation. 4. **Forecast**: Future projections, particularly for recurring revenue, are increasingly important. 5. **Leadership**: Strong leadership is vital for successful integration during mergers. 6. **Churn**: The rate at which customers leave is a significant consideration. 7. **Lead Generation**: Effective strategies for acquiring new clients are critical. 8. **Total Addressable Market (TAM)**: Understanding the maximum potential revenue is essential for growth. 9. **Ownership Structure**: A clean cap table simplifies investment and ownership decisions. 10. **People/Cloud Skills**: Demand for skills in various Salesforce Clouds continues to grow. ### Additional Context The health of the M&A market often reflects the overall vitality of the Salesforce ecosystem. A strong M&A environment signals investor confidence in the potential for growth and innovation within the sector. However, employees at acquired companies may face uncertainty, including potential layoffs, highlighting the dual nature of such corporate changes. ### Hashtags for SEO #Salesforce #MergersAndAcquisitions #BusinessGrowth #PrivateEquity #ValuationFactors #SalesforceEcosystem #TechAcquisitions #EnterpriseSoftware #InvestmentTrends #BusinessStrategy
There has never been a shortage of mergers and acquisitions (M&A) to write about in the Salesforce ecosystem. Companies have historically been keen to get a foothold in the sector, but macroeconomic factors generally have been far from ideal over the past few years – and this has had an effect.
But things have been looking up more recently, with a decent amount of M&A activity, including Synechron acquiring Cloobees, Nextview acquiring Sabio’s UK Salesforce practice (formerly Makepositive), and the ‘Mothership’ itself, Salesforce, snapping up a few prospects, including Own Company.
This could be interpreted as a healthy sign for the ecosystem as people still see future value in it. Amid this perhaps hopeful backdrop, we spoke to Alex MacKay of Tequity Advisors to understand the key factors that affect valuations in the ecosystem.
2025 Picture for Salesforce Ecosystem
Overall, the M&A market for the Salesforce ecosystem had been vibrant from around 2015 right up until 2019, before suffering major disruption in 2020 amid the coronavirus pandemic, then leveling out in the following years, according to Alex.
In 2023 in particular, the words “prudent” and “safe-haven” were common in calls with private equity firms, perhaps signifying a desire for certainty amid a somewhat chaotic global landscape. Even through these years, however, Salesforce and ServiceNow were considered safe haven investments, remaining on the radar for the majority of private equity money.
In 2024, in the same kind of calls, Alex reveals he never heard the word “prudence” and did not hear much about “safe-havens” either. Perhaps unsurprisingly amid the global pandemic, Govtech and healthcare became top-liners because they can be seen as safer places to invest for the long term.
“In 2024 those words weren’t present,” Alex said. “It was more like, ‘We’re open for business’… [We’ve got] unused capital and lots of it.”
This year, indications have been that M&A is picking up across the market in enterprise software in general, and the same applies to Salesforce.
“We see that pattern emerging… We expect 2025 to be a solid year.”
Below, we list the top 10 factors that are likely to affect valuations going into the new year.
1. Year-Over-Year (YOY) Growth
Tequity Advisors, who have completed 25 Salesforce ecosystem M&A transactions to date, say that YOY growth has historically been “number one” when it comes to M&A.That hasn’t changed and remains a key factor, but many partners are finding it harder to maintain historic levels of this metric – for those who can, valuations increase.
Alex MacKay of Tequity said he expects 2025 to be a good year with a lot of growth, and that valuations in the Salesforce ecosystem have remained decent. He told Salesforce Ben:
“In 2024, valuations remain relatively solid. However, the criteria has changed a fair bit.
“If you compare it to 2019 for example, what are the top three criteria? Year-over-year growth, followed by year-over-year growth in certain clouds, followed by year-over-year growth in certain categories; for example, verticals.
“In 2024 and I suspect it’ll be very similar in 2025. The top three would be AI, vertical specialization, year-over-year growth – all three combined with profitability.”
So while YOY growth remains ever-important, it seems to have become just another piece of the puzzle, rather than the single most important factor.
2. Vertical Expertise
Tequity says that industry expertise is among the top metrics buyers are paying attention to in late 2024 / early 2025. From 2022 to early 2024, most buyers have been “prudent”, looking for “safe-haven” investments, according to Tequity.
Having knowledge of an industry likely means you are talking business at a much higher level and your solutions are being implemented deeper inside an organization, with industry expertise signifying a stronger reach into your client’s technology strategy.
Alex told Salesforce Ben that if you’re an expert in healthcare, for instance, then it’s likely you will be able to talk to more senior people. While you happen to represent a product, CEO/COO-level people will still want your insight into their own industry.
He said: “If all you’re talking about is the product, then you’re sent off to the director. But if you can talk about the business, I’m in. Then me as an EVP or a president or, if a small enough company, perhaps even the CEO or the COO… if you’re talking [about] their business, they want to talk to you.
It’s the old idea of ‘I don’t want the drill, I want the hole’. If you actually can describe the hole, then you’re going to get very senior.”
3. EBITDA
While YOY growth features as number one on our list of factors, the days when that was the only key factor are over, according to Tequity. Strategic and private equity (PE) buyers in 2024/25 need to see a valuation multiple on profit with a logical correlation to the traditional revenue multiple.
That’s where earnings before interest, taxes, depreciation, and amortization (EBITDA) comes in.
4. Forecast
Understanding a company’s past is a key piece to getting an accurate valuation. But a prospect’s 2025 forecast and pipeline are next on the list when it comes to M&A, with one year out the primary focus.
Details such as annual recurring revenue (ARR) for ISVs and backlog for services included makes a great deal of difference.
5. Leadership
A company’s current and future leadership is always key, and there are several variables that come with timing around leadership transitions. When one company acquires or merges with another, it creates a synthesis between different corporate cultures and leadership styles.
A change in ownership often comes with a change in management, but knowledgeable, experienced leaders who know their industry and their company will likely be a boon, whoever the owners are. If a change in leadership is sought out by the new owners, this must be implemented carefully, with a smooth transition of management desirable – along with a painless integration of teams, who may have recently been rivals.
6. Churn
“Churn” refers to the number of customers who stop doing business with a company within a given period. If the prospect is an original equipment manufacturer (OEM) or independent software vendor (ISV), net and gross “churn” will both be evaluated.
7. Lead Generation
What are your methods for generating new and repeat business? How much does it cost to add a new client or project? Buyers will likely want answers to these questions.
8. TAM
Total addressable market (TAM) refers to the maximum revenue opportunity available for a product if, hypothetically, a 100% share of the market was achieved. The metric functions as a kind of “best-case scenario”, and is critical for ISVs.
It is also important for service partners because TAM supports growth beyond your own capabilities. For example, if you were partnered with a bigger player, what white space is there?
9. Ownership
A company’s “cap table” outlines all its debt, equity ownership, and the liquidation rankings of different investors and lenders. Startup cap tables will typically be made up of shareholders and what percentage they own.
There are varying forms of equity-like convertible debt, preferred stock, and common stock, and this can complicate things (making them “messy”). But keeping a “clean” cap table means making decisions about giving away ownership in exchange for capital becomes that much simpler.
“Messy” cap tables, on the other hand, can lead to mistakes in how much ownership or the type of debt an investor is offered, so a “clean” cap table is always preferred.
10. People/Cloud skills
Tequity says that Agentforce is “clearly rising fast”, but other Clouds come into play with Service, Revenue, Marketing, and Experience “always” being in demand.
Final Thoughts
Mergers and acquisitions can be viewed as a litmus test for the health of the Salesforce ecosystem. If money is flowing in from outside, it means people see value in the products and talent inside.
Alex’s expectation of a “solid year” in 2025 may be seen as good news for the ecosystem’s long-term health. But of course, people working at companies that get acquired may face significant shake-ups, including layoffs, so they might not want to bust out the champagne just yet.
If you are a founder who is interested in selling your business or you just want to chat about the current state of M&A or the ecosystem at large, feel free to reach out to [email protected].
The post Salesforce M&A in 2025: Top 10 Factors That Affect Valuations appeared first on Salesforce Ben.
January 08, 2025 at 05:25PM
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