Demandware Inc, whose software is used by businesses to run e-commerce websites, would be bought over by cloud-based software maker Salesforce.com Inc. the latter company said on Wednesday. The deal is expected to be worth about $2.8 billion.

As Salesforce attempts to take more market share from traditional software providers such as Oracle Corp and SAP AG, the deal would help the former company to open up a new front to challenge the market leaders. Both Oracle Corp and SAP AG have also diversified and now offer cloud-based e-commerce services.

Demand for software that helps manage functions such as payment processing and inventory management has been growing very fast among e-commerce companies as the e-commerce market continues to grow at a very fast pace and retailers active in this industry is continuing to expand their online presence and new ones are entering the market on a regular basis.

A 56.3 percent premium to Demandware’s Tuesday closing is represented by Salesforce’s cash offer of $75.00 per share.

Naming Adobe Systems Inc ABDE.O and Oracle as the other possible contenders, Stifel Nicolaus & Co analyst Thomas Roderick noted that the lofty premium offered by Salesforce indicates that multiple bidders were most likely present at the table for Demandware.

“We’re not winning every deal, this is just the deal that we were actually able to get done,” Salesforce Chief Executive Marc Benioff told CNBC in an interview.

Demandware’s shares rose 55.9 percent to $74.81 on Wednesday which was agin for the company after its shares had fallen about 21 percent in the past year. There was a 0.3 percent fall in the share prices of Salesforce. The share price of Salesforce is considered a barometer for the cloud-computing industry.

For the last 10 quarters, Demandware has reported sales growth of more than 30 percent. The clients for Demandware incuds big names in the retail industry such as Lands’ End Inc, L’Oreal SA  and Marks and Spencer Group Plc.

“I think Salesforce has effectively already won the CRM war – they need to stay out front in terms of innovation and they do need to have the broadest, deepest portfolio … this was a blind spot for them,” Wedbush Securities analyst Steve Koenig said.

Citing research firm Gartner Salesforce said that the global spendings on digital commerce platforms is expected to grow over 14 percent annually to reach about $8.5 billion by 2020.

Analysts and market experts expect that Salesforce’s 2017 revenue would be increased by about $100 million-$120 million by the deal which is slated to close in Salesforce’s second quarter ending July.

On May, fiscal 2017 revenue of $8.16 billion-$8.20 billion were forecast by Salesforce. However, down from its previous forecast of $1-$1.02, Salesforce said it now expected an adjusted profit of 93 cents-95 cents per share for the full year.

While Goldman Sachs is advising Demandware, BofA Merrill Lynch is Salesforce’s financial adviser for the deal.

(Adapted from Reuters)

Categories: Economy & Finance, Strategy, Sustainability