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TABLEAU VALUATION BY SALESFORCE


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Integral service around a transaction
BY : Diego GutiérrezJuly Thu, 2019

Salesforce has recently closed the largest acquisition in its history, the buy from Tableau by 13.880M€. The deal comes on the heels of purchases by Google and Microsoft in the same field, highlighting the importance that cloud and data analytics are taking on in the businesses of technology companies.

We analyse in the following lines this purchase and the valuation of Tableau from a corporate finance perspective.

US customer relationship management (CRM) platform Salesforce has reached a definitive agreement to acquire Tableau in a share-for-share swap. The agreed terms value the software company at around $177 per share, a premium of almost 50% to its last trading price.

TABLEAU BUSINESS MODEL

It is a company specialising in data representation and visualisation, which has become a benchmark in the field of Big Data. It offers different products:

  • Tableau Desktop
  • Tableau Server
  • Tableau Online
  • Tableau Reader

It currently has more than 86,000 customers, including companies such as Wells Fargo, Dow Chemical, SpaceX and Netflix.

Tableau generates revenue through two channels: software licences and maintenance and service fees.

The former has experienced significant growth in recent periods as a result of the company's transition to a business model based primarily on this revenue stream.

The second is mainly the sale of maintenance agreements (technical support and upgrades). These revenues are expected to continue to grow as a result of the increase in the total customer base.

The future performance and success of the company depends on a number of factors: the ability to continue to acquire customers and expand its network; to continue to innovate and improve its products; to maintain investment in its infrastructure; and possible changes in customer consumption trends.

TABLEAU RATING

Through the latest financial statements presented by the company we analyse its financial situation.

Financial analysis

TABLEAU VALUATION BY SALESFORCETABLEAU VALUATION BY SALESFORCE

 

 

Tableau shows a very remarkable growth in sales, reaching double figures in the last year, which is very positive. This is mainly due to its international expansion, which is allowing it to reach new customers.

However, it should be noted that this growth is being achieved thanks to the company's significant marketing and sales expenditure, which represents 75% of sales. As stated in its annual accounts, these expenses are expected to continue to rise as a result of its expansion, and will represent the largest item of its operating expenses.

For this reason, doubts arise as to whether the company will be able to increase its sales at a faster rate than its operating expenses, so that it can move away from losses and start adding positive net profit.

The balance sheet shows no significant changes, except for the increase in shareholders' equity, mainly due to the share premium corresponding to the stock options that Tableau grants to its employees, which they consider to be a very good form of remuneration.

Summary

From an operational point of view, the corporate transaction seems reasonable and logical. In this way, Salesforce enhances its CRM and middleware services with the addition of Tableau and its powerful data analytics tool. In addition, significant synergies can be created that will help to reduce considerable costs through the cross-selling that will be generated.

However, it is worth looking at the agreed purchase price. Taking into account the EV/Sales ratio, it can be seen that both companies have had a ratio of around 8.5x in the last year. However, the transaction price is equivalent to 13.2x, 65% higher than historical. It can therefore be said that the price paid for Salesforce exceeds the valuation that Tableau has had in recent months.

Therefore, although the transaction makes sense from a business model perspective, the price paid is excessive considering Tableau's growth rate and operating losses.

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