Customer relationship software giant Salesforce.com (CRM) announced a sizable acquisition Monday, as the company used cash and stock to acquire social media software maker Buddy Media. According to The Wall Street Journal, the deal could be worth as much as $745 million, with $467 million coming in the form of cash, and the rest of the deal paid in Salesforce.com's stock as well as additional options and milestone payments.
Although Buddy Media isn't that well known, the firm does boast a lineup of clients that includes Ford (F), Hewlett-Packard (HPQ), and Mattel (MAT). The company creates software that manages social media across all platforms and provides clients with actionable social media strategies. Since the actual returns on social media are unknown (and challenging to accurately measure), it's very difficult to value Buddy Media's business at this time. For instance, some of the company's measured returns on investment are higher post "likings" on Facebook (FB) and follower growth on Twitter. Whether this actually is a valuable form of advertising is still unclear to us.
Still, we think Buddy Media is likely a valuable product to add to Salesforce.com's product suite. Whether or not the returns on investments in social media software are adequate is somewhat irrelevant, in our view, because companies may continue to invest in social media efforts until a clear value presents itself. GM may be the exception rather than the rule. It could be one, or five, or twenty years until companies realize the value of their social media investments. Further, since the field is still in the early stages of its evolution, we suspect Salesforce.com has acquired through the deal some meaningful talent that will help it adapt to a rapidly-changing atmosphere.
Management thinks the acquisition will add around $20 to $25 million to the top line in the second half of 2012. At this time, we're viewing the deal as value-neutral to Salesforce.com's intrinsic value (click here for full report). And based on our valuation of the customer-relations software giant, we'd need to see a significant pullback in the shares before we'd consider adding it to the portfolio of our Best Ideas Newsletter.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.