Inside Salesforce’s $100 Billion M&A Playbook | John Somorjai

John Somorjai has helped oversee nearly $100 billion in Salesforce acquisitions, alongside investments in more than 750 businesses and 29 acquisitions. The company combines buying with organic development in areas where CEO Marc Benioff believes the industry is headed. Somorjai says deals must demonstrate customer demand and impact, strategic and technological fit, cultural alignment, valuable talent, and benefits for customers and shareholders. Valuation and the time needed to create value are especially challenging because “everything is expensive.”

Salesforce’s build-versus-buy decision weighs product roadmaps, internal expertise, hiring prospects, and whether an acquisition can accelerate integration compared with building in-house. A deal can take six to nine months from initial idea through integration, while a shortage of AI engineers can make buying a faster route to capability. Customer feedback is central to diligence, including whether customers are likely to renew. Somorjai cited Listen Labs’ technology and ease of use: his team launched a survey in 10 minutes without enablement and also used the product during diligence.

An acquisition can gain reach through Salesforce’s 15,000 sales representatives, while its more than 8,000 independent software partners give customers the option of Salesforce or partner products. Founders considering a sale weigh that distribution against continuing to raise capital and accepting further dilution. Salesforce, Somorjai says, focuses integration on onboarding acquired employees and supporting their careers. Service Cloud, now nearly $11 billion in annual operating value, grew from Salesforce’s 2008 acquisition of Instranet; its founder, Alex Dayon, later became Salesforce’s chief product officer. The acquisition of David Schmeyer’s Velocity brought an industry-vertical focus and six verticals. Salesforce has since added seven, for a total of 13.

Somorjai described an AI acquisition as a way to accelerate Service Cloud’s move into native AI applications that Salesforce could not build quickly enough; the acquired company’s Dublin AI team was a key strength. Founder Owen has challenged established practices inside Salesforce. Alex Imerman said Finn was running at Salesforce within 14 days, handling more than 40% of help.salesforce.com traffic and resolving 65% of cases without a human. Somorjai pointed to its quick time to value as an example of a strong acquisition.

Salesforce acquired Slack in 2020, seeing a popular product that needed broader distribution and was losing ground to Microsoft Teams. Slack revenue is now nearly three times its level at acquisition, and Somorjai calls it Salesforce’s fastest-growing product. Salesforce did not foresee Slack’s later role as an interface for AI agents. It has become a conversational interface for AI and agents, as well as a collaborative surface for Salesforce products, people, and apps.

Salesforce Ventures began investing in 2009, first backing ecosystem companies such as DocuSign, Encino, and Twilio, then extending into data, cybersecurity, and AI. At the beginning of 2023, Salesforce established a $1 billion AI fund; its AI investments include Anthropic, Mistral, Cohere, ElevenLabs, and Runway. Somorjai said Salesforce Ventures invested in six Anthropic funding rounds and regarded the company as exceptional from their first meeting. The firm targets large opportunities, may back companies that later compete with Salesforce, and helps portfolio companies reach enterprise customers. Somorjai is skeptical of many CRM startups because specialized products face established competitors and continued Salesforce improvements, though he sees a possible downmarket opening.

Somorjai estimates that 1% or less of companies go public, so investors should consider likely acquirers; the pool of buyers narrows sharply for businesses valued above $10 billion. He says some valuations are unsustainable and a reckoning is inevitable, though he cannot say when, and warns that inflated valuations can harm employees. Many companies seeking acquisitions do not succeed. In Salesforce diligence, 14 functions participate, but security can stop a deal. ARR may conceal customer attrition, a signal of unhappy customers or product-quality problems. Somorjai advises companies to assess privacy and security and red-team their technology before diligence; Salesforce runs its own penetration tests. One test uncovered unrecoverable problems after Salesforce accessed a target’s source code, the CEO’s laptop, and employee information, and the deal did not proceed. Other issues may be fixed as conditions of signing or closing, depending on severity. Organized financials and customer-contract data, accessible information, and secure technology help diligence move quickly; gaps can delay or kill a deal. Serious problems often emerge after the term sheet and major terms are in place, rather than at the 11th hour.