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ExactTarget sale caps success story; CEO mum on Indy work force

June 4, 2013

ExactTarget Inc. CEO Scott Dorsey said the company will remain “very committed to Indianapolis” after its $2.5 billion buyout by San Francisco-based tech giant Salesforce.com, but he would not comment on potential changes to the local workforce.

“It’s very early," Dorsey said in an interview Tuesday morning shortly after the deal was announced. “I’m not in a position to talk too much about the future.”

More than 1,000 people work for ExactTarget in Indianapolis, and about 700 more work for the firm globally. And the company in December pledged 500 new jobs by 2018 and $55 million in investments in Indianapolis  Based on the plans, the Indiana Economic Development Corp. committed to $10 million in performance-based tax credits and $200,000 in training grants.

Dorsey would not discuss the future of the company's expansion. He will continue to oversee ExactTarget’s operations as a senior executive for Salesforce.com. Other top executives for ExactTarget will also remain in Indianapolis, he said.

In a front-page story on March 30, IBJ reported that ExactTarget had become a prime acquisition target, noting that Salesforce.com was the leading contender.

The sale caps a spectacular run for a company that launched in a Greenfield business park in 2000. The company's roots are in email marketing, although its offerings have broadened over the years.

Participants in the original, $200,000 friends-and-family funding round have seen the value of their initial bet skyrocket. A $5,000 investment then is now worth about $1.5 million.

Dorsey holds 2.09 million shares. Based on Salesforce's $33.75 offer, those shares are now worth more than $70 million.

Other top managers hold hundreds of thousands of shares. In addition, the company doled out stock options to nearly its entire work force, ensuring rank-and-file workers will see a big payoff from the deal as well.

Mark Hill, chairman of the technology promotion group TechPoint, said ExactTarget’s sale at such a lofty price further validates the firepower of Indianapolis’ technology community.

“You know, 10 years ago, we were really wondering whether or not we could build a large and meaningful software company in Indianapolis," Hill said. "Scott Dorsey and his team have proven it can be done. It is pretty incredible that [a company of Salesforce’s stature] would want a company in Indianapolis and spend $2.5 billion to get it.”

On the other hand, Hill acknowledged that “part of me is sad to lose a headquarters company.” But he said the blockbuster deal “is going to fuel the fire for the entrepreneurial tech company. It will provide talent and money and contacts to create other great companies.”

Indianapolis has a long history of tech startups proliferating after one sells. The cycle began with Software Artistry Inc.’s $200 million sale to IBM in 1997. One of the investors who scored big in that deal was former venture capitalist Bob Compton, who became one of the key early investors in ExactTarget.

The company's shares had struggled to rally interest on Wall Street since an initial public offering in March 2012. Shares surged from an offer price of $19 to more than $25 in the first day of trading, but they settled in the high-teens to low-twenties thereafter.

The deal price is a 53-percent premium to Monday's closing price of $22.10. In recent trading this afternoon, the shares were going for near the deal price of $33.75.

It's the largest deal yet for Salesforce.com, which is trying to expand from its core business—offering cloud-based customer-management tools—into social marketing.

“We couldn’t just keep making these small acquisitions. That strategy was taking, honestly, too long,” Benioff said on a conference call with Wall Street analysts, who cheered the deal.

“This is an excellent move and fit for Salesforce.com, and we consider the price paid reasonable given ExactTarget’s leading market position and growth profile,” Nathan Schneiderman, an analyst at Roth Capital Partners, wrote in a research report Tuesday.

ExactTarget gets 80 percent of total revenue from email, filling a “huge hole” in Salesforce’s current offerings, Schneiderman added.

Jeff Houston, a Barrington Research analyst who follows both companies, said ExactTarget’s back-office jobs—such as accounting and human resources—could be at risk because Salesforce.com already has those types of jobs filled. Software developers, marketers and other employees involved with the firm’s core business should be safe.

ExactTarget has performed well enough to justify its autonomy under its new ownership, Houston said.

Profit has eluded the company since 2008 as the firm has invested heavily in areas such as acquisitions and research and development. But revenue, which grew 41 percent in 2012, has steadily increased.

“I think they’re going to keep a big presence in Indianapolis,” Houston said. “They’ll leave ExactTarget’s operations largely alone.”

Salesforce’s purchase of ExactTarget would be the biggest e-marketing takeover since 2008, when Google Inc. completed its acquisition of DoubleClick Inc., according to data compiled by Bloomberg. Salesforce is paying about 7.6 times revenue, compared with the median of 1.9 times revenue in a survey of more than 70 similar deals, the data show.

Bank of America Corp. advised Salesforce, while JPMorgan Chase & Co. provided financial guidance to ExactTarget.

SAP, the biggest maker of business-management software, considered buying ExactTarget and then decided not to proceed, Bloomberg reported, citing a source. An SAP representative declined to comment.

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