Uncovering Salesforce M&A Trends and Insights

M&A (merger and acquisition) transactions in technology ecosystems such as Salesforce are propelled by two defining qualities – the entrepreneurial effort by members of that ecosystem to create thriving, innovative companies, as well as the interest from financial and strategic investors in that ecosystem.

Luckily, Salesforce has both qualities in abundance, making it one of the most lucrative technology ecosystems in the past 25 years.

The ecosystem is no stranger to entrepreneurial efforts. In fact, it’s probably one of the most supportive ecosystems regarding entrepreneurial spirit and creating that community feel. This is most evident through the number of in-person events that Salesforce users, professionals, and entrepreneurs race to every year.

Due to Salesforce being one of the, if not, the fastest-growing enterprise software companies ever, this has of course attracted a wide variety of financial and strategic investors from around the globe. Although all technology ecosystems have had a bumpy ride as of late, Salesforce has grown from a $4B revenue company in 2014, to over $35B in 2024. Historically, Salesforce has done extremely well at meeting its target earnings every quarter, and the recent miss in May 2024 was the first time since 2006.

Investment Cycles

Technology ecosystems will go through various investment cycles that cause the M&A market and VC (venture capital) investments to ebb and flow as the ecosystem ramps up. It then hits a peak, and later declines as the market matures and reaches consolidation. 

Typically, investment cycles will look like the following…

1. Early-Stage: The initial phase where personal capital, seed, angel, or venture capital funds are deployed, aimed at startups and emerging technologies. 
2. Growth-Stage: As companies demonstrate product market fit and achieve initial success, they enter the growth stage and attract VC money. 
3. Mature-Stage: Companies that reach maturity in the market attract late-stage investors such as Private Equity. This figure typically reaches around $5M in revenue in the Salesforce ecosystem.
4. Exit-Stage: After many years of investment, this is the stage to provide liquidity for early investors. This could be through a merger, acquisition, or IPO.

However, the Salesforce ecosystem seems to have been through multiple cycles…

Some of the biggest transactions in recent years have included the $715M Apttus/Conga Merger, as well as the $1B Certinia (previously FinancialForce) acquisition, both backed by Private Equity money, pointing to a mature-stage cycle. But as many will know, Conga, Apttus, and Certinia were some of the first companies to join the AppExchange program.

Much of the money deployed in the Salesforce ecosystem came from VCs during the Covid year booms of 2020-2022. As we covered back in 2021, over $1B in capital was raised for a few Salesforce-associated ISVs. This demonstrated that we were firmly in the growth stage, with many of these companies having a firm foothold in the Salesforce ecosystem, but using the funds for expansion. 

In addition, plenty of Salesforce App companies continue to pop up in relatively new spaces, such as AI and DevOps, who are looking to gain momentum in their respective categories. Swantide, Synch, and Spover are also some that come to mind. 

Where Are We in 2024 for ISVs? 

The Salesforce ecosystem currently has a lot of capital invested within it, and whilst there are always multiple options for exit opportunities (mergers, acquisitions, private equity), there isn’t a viable IPO market with current macroeconomic conditions. Although there haven’t been many ISVs who have IPO’d, two of note include Veeva Systems and nCino.

With this in mind, it does suggest that we’re in a buyer’s market for the VC-backed bunch of ISVs. Buyers also want to see profitability; gone are the days of the grow-at-all-cost mentality, where they would typically expect to see at least a 15% margin being made. 

However, the buyers market does not mean that founders and entrepreneurs need to fret – the Salesforce M&A market is highly resilient and has largely remained consistent through various turbulence in the market, including 2024. 

What About Solution Integrators?

The SI landscape has changed a lot in recent years. Large Global System Integrators (GSIs) are always looking for a larger share of the market from the Salesforce customer base. This has been reflected in many mid-sized consultancies being acquired by some usual suspects (Accenture, Deloitte, IBM, Wipro, and PWC).

This has opened up the SMB and mid-sized consultancy market to new entrants such as Future Form and Mint Consulting in the UK, who are often born from the ashes of acquired firms.

However, as GSIs continue to grow, buyers’ interest is moving upstream as well, and the likelihood of selling under $5M in revenue is lessening across the board as buyers look upstream to assets of $10-15M in size. 

In addition, verticalization and multi-cloud project experience are becoming normalized within the Salesforce partner ecosystem. This is creating a competitive environment for highly specialized businesses. 

But in better news, many partners who were told “It’s not no, it’s just not now” in 2023 are now seemingly back on track. Companies such as Sercante and Cloud Orca have continued to grow, and have been acquired this year.

Summary 

Many who are not familiar with the ecosystem assume that the market is maturing and that valuations will start to decline, but this is not the case; valuations have remained steady since around 2017. 

What has shifted significantly is the buying criteria. Previously, year-over-year growth was the primary focus, but now factors like vertical expertise and profitability have gained greater importance. Despite these changes, the overall ecosystem remains dynamic and continues to be an excellent place for growth-oriented investments.

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 me directly at ben@salesforceben.com