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Is Salesforce on the Block?

The potential bidding price of Salesforce is inconsequential to a huge software company like Oracle or Microsoft, Bender said. And Salesforce's earnings before interest, taxes, depreciation and amortization (EBITDA) margin was a stellar 28.9% in November on a trailing 12-months basis, compared to an EBITDA margin of 11.2% for the software industry at large, and 7.5% for SaaS companies, he said.

SaaS companies are slower to arrive at profitability, but yield higher margins than traditional "shrink-wrap" software providers as they mature, Bender said.

Salesforce's margin should make it an attractive buyout candidate. To an acquirer, Salesforce "is going to be accretive and very, very profitable," Bender noted. Software Equity Group does not have a stake in any SaaS company discussed or trade in their securities.

"The behemoths have struggled mightily to penetrate" the market for small and medium enterprises (SME), to little effect, Bender said.

Software as a service is the most viable way to sell to such businesses. Although this market is the "holy grail" to large software developers, small and medium-sized businesses have not responded to them, he added.

Software Equity Group's SaaS index lists 18 companies. These 18 grew revenue at 42.5% in 2007, compared to top-line growth for all public companies of 14.4%, according to Software Equity Group.

If Benioff is looking to sell, now would be the time, as Salesforce's trajectory begins to taper off under the rule of large numbers. The company's revenue grew 83.5% in 2005, 75% in 2006 and likely grew 49% for all of 2007, Bender said.

"That's still phenomenally more successful than the software industry at large," Bender said.
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