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

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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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  • The "why" behind the purchase
    Salesforce.com purchased ET for two reasons: (1) technology (namely email, as Salesforces' capabilities are nearly non-existent), and (2) customer base. Knowing both companies, as well as understanding how these scenarios unfold, I'd be willing to bet they'll dump redundant staff soon (HR, Finance) but retain the majority of the other functions to keep the "wheels on the bus" - nobody wants to buy a solution only to have those knowledgeable enough to maintain/run it leave the company.
  • To George
    While I appreciate your enthusiasm, you must realize that Minneapolis, Richmond, and Portland are vibrant marketing/creative communities because all three cities are chockablock with high-profile Fortune 500 company headquarters. Until Indy cracks that code, companies and talent will continue to leave.
  • ET's future in Indy
    There is no doubt that we will see a dramatically smaller ET workforce in Indianapolis within the next five years. Like another poster already mentioned, SFDC did not buy ET for their workforce.
  • Goodbye ET
    I have no knowledge of ETs situation, but I know a little about tech M&A activity in general. In order to determine whether they will stay here or not, you have to determine first why they bought the company. Was it because of the technology, key personal, customer base, etc.? In ETs case, it most certainly was about the customer base, and an opportunity to sell other Salesforce products where there already is an established relationship. Though company officials would surely disagree, ETs technologies aren't special or unique. Their ability to sell something so ordinary is dramatic, though, so I believe that this was a play to get into the customer base. If so, the tech development will be done elsewhere, probably in Hillsboro. The fact that it is very difficult to attract top tech talent to the Midwest only adds to this likelihood. I suspect there will be a sales office here and not much more. Could be wrong, but I've seen this before and clearly the CEO would have wanted to clarify this if it was important to him. The fact that he can't comment says it all. Tick tock.
  • I had another thought...
    I happened to have a "lateral thinking" moment re: "CEO mum on Indy work force" and "but he would not comment on potential changes to the local workforce" It hints at local changes, but doesn't say anything about people moving...at least from Indy. Who is to say there won't be SalesForce folks who won't be coming here to take particular positions?
  • Stay or Go?
    Until Microsoft et alia picked off a few very close friends who were good eyes & ears...it looked like ET would stay in the case of a sale, providing vindication (which was anticipated, for all of the obvious reasons) I'm working on the "next" Exact Target. Should I make it far enough to attract attention, I haven't decided what I'm going to do to protect the local fauna. Now? I have my suspicions.
  • Stay or Go?
    “I think they’re going to keep a big presence in Indianapolis,” Houston said. “They’ll leave ExactTarget’s operations largely alone.” Anyone with some knowledge of this company care to speculate on the odds of this?
  • Rising Tide Raises All Ships.
    I think Mark Hill is spot on with his assessment that this is good, image wise, for Indianapolis as a tech hub. On the integrated side of our own business, when markets like Minneapolis, Richmond and Portland emerged as innovative advertising, marketing and communications hot spots, it was good for their entire markets. Now that Indiana companies like Exact Target are being recognized–and justly rewarded–for their insight and innovation, I really do believe it will impact the market for all of us marketing types. Nicely played.

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