Get Ready For Salesforce, Taleo And NetSuite Buyouts In 2012

by: Vatalyst

As mobility and flexibility have changed the workplace paradigm, the need for cloud-based storage and software has flourished. This expansion has crossed over into software development as large companies look to add strategic elements to their subscriber-based platforms. This is especially true in the customer relationship management arena, where analysts are starting to view (NYSE:CRM) as the next buyout target.

Founded in 1999 by Marc Benioff, Parker Harris, Frank Dominguez and Dave Moellenhoff, Salesforce has specialized in offering software as a service. (SaaS) Salesforce went public in 2004, and has developed into a powerful company that currently has a market cap of $14.2 billion and fiscal year 2011 revenue of $1.66 billion. The company has been trading over $100 per share, with its current 52-week range falling between $102 and $160.

Why are Enterprise Companies Looking to Expand?

Enterprise software companies like SAP (NYSE:SAP) and Oracle (NYSE:ORCL) are looking for ways to expand their product offerings and stay ahead of the curve with respect to maintaining a competitive edge. Cloud storage and computing are a rapidly growing part of this expansion plan.

Because workforces are increasingly mobile, it is important for a business to make both software and information available to employees wherever they go. If a salesman in Dallas needs to review the customer data in San Francisco, having access to software and data is easier if it is cloud-based. This type of flexibility makes Salesforce very appealing because it can give an entire platform the freedom to be operated from virtually any location while maintaining its scalability.

Recent Purchases of Cloud-based Software Solutions

SAP, the huge German-based company that specializes in business management software, recently made its entrance into the clouds by paying $3.4 billion for SuccessFactors. (NYSE:SFSF) A strong software firm that offers cloud-based workforce management, this move allows SAP to start moving toward a mobile solution to augment its powerful desktop tools. The decision is aimed at re-energizing the company’s stock, which is trading below the midpoint of the 52-week range and is facing a 15% drop for its 1-year target.

The move by SAP occurred only weeks after a similar acquisition by its rival, computer technology giant, Oracle Corporation. The large American company purchased RightNow Technologies (NASDAQ:RNOW) for $1.4 billion in October. This move gave Oracle a foothold in the market as RightNow is a highly-regarded cloud vendor, and like SuccessFactors, is a member of the IBD Computer Software-Enterprise group.

Which Companies Are Next?

Salesforce isn’t the only cloud computing company that looks like a target for the computer giants. Both Taleo (NASDAQ:TLEO) and NetSuite (NYSE:N) appear to be ideal targets. Both members of the IBD Computer Software-Enterprise group, the two companies both offer expertise and market metrics that suggest they will be watched very closely.

Taleo is a California-based company that specializes in cloud-based talent management, workforce management and compensation software solution. The company’s stock is currently just below the 52-week high it set in early December and appears to be on a downward trend. With a market cap of nearly $1.7 billion and a one-year target of less than its current price, Taleo looks like its share price will remain steady enough that an investor might take notice and move in, especially if its slide continues.

NetSuite Inc is another cloud-based SaaS provider that could be a prime buyout target. Providing business solutions such as ERP and accounting software, order management, CRM and more for over 10,000 organizations worldwide, NetSuite is the kind of company that many software companies are considering. Like Taleo, the company has a modest $3 billion market cap and sits near the top of its 52-week range after breaking through in December. Its ESP is a dismal -0.47 and its 1-year target suggests a 10 percent to 15 percent drop. Look for the pressure of a weakening CRM market to force prices down and create increased talk of a buyout.

Of these three prospects, Salesforce offers the brightest picture going forward. The company boasts a healthy $14.2 billion market cap, and a positive EPS of 0.02. Trading at more than $104 per share, CRM stock is close to its 52-week low of $102.96, giving it plenty of room to run against its high of $160.12. It is definitely expected to run, with its 1-year target sitting at $150, representing a nearly 50% increase. There is skepticism surrounding CRM, and although investors should be a bit wary of the hype surrounding it, the company may be a prime choice for the next big buyout.

Software Companies with Their Heads in the Clouds

Cloud-computing and storage options have allowed many software giants to take their business solutions outside the office walls and offer customers greater freedom. This new reality has pushed a number of these businesses on the sales block as enterprise developers look for a quick entry into cloud computing. This is a big motivator in the sales of SuccessFactors and RightNow Technologies, and it will be a driving force in the possible acquisitions of Taleo, NetSuite and Salesforce.

Of these three, Salesforce has a different financial standing than the others. With tremendous momentum and a large move expected over the next year, it stands in contrast to the struggling fortunes at Taleo and NetSuite.

Now is a good time to consider a Salesforce purchase. With its incredible forward P/E of more than 6,500 and enticing 1-year target of $150, any positive news about the company early in 2012 is likely to send its stock price much higher. Investors who are looking to capitalize on buyouts should also stay tuned in as Salesforce continues to be a prime target. There is a strong potential with CRM as excited investors try to keep their feet on the ground while following this solid cloud-based computing company.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.