Acquisition of Tableau by Salesforce

Details of the Company Acquired

 Tableau is a subsidiary company that was started in 2003 in Mountain view, California. It has its headquarters in Seattle Washington (Fynn Bruey, 2019). It is an American firm that deals with interacting data which is visualized in nature and has majors on business intelligence. 

On 1^st June, 2019, the two companies i.e. Salesforce and Tableau informed the public of the definitive agreement under which Salesforce would acquire Tableau (Nina, 2020). The main reason for the acquisition was to form a platform where teams can collaborate to give real-time customer support hence uniting the customers where necessary. The acquisition deal was $15.7 billion. Immediately after the acquisition, Salesforce informed the public that it would integrate Einstein Analytics with the firm acquired and will be renamed Tableau CRM. Salesforce hopes to achieve an easy tactic of connecting any information with the integration and helps it in faster decision making. The deal stated that Tableau shareholders would get 1.103 Salesforce stocks, this is valued at $177.88 per stock, showing a bonus of 42% to the then Tableau’s closing amount. The plan was completed on 1^st August, 2019. It owns Tableau 100%. 

Allocation of Acquisition Differential

 The consolidated balance sheet of Salesforce in the last quarter on the last quarter of 2019 i.e. 1^st January, 2020, the carrying amount of the net assets which is equivalent to the carrying amount of total stockholders’ equity is $33,885. Salesforce has a norm of recording the amount resulting from over-purchase plan over the fair value of net tangible and intangible assets as goodwill. The amount is attached to the innovative activities and enhanced growth in the market and this does not provide a basis for U.S income taxation functions. The recorded goodwill on Slack acquisition was $25,134 and this is deductible on calculating the acquisition differential. The acquisition differential of Slack is calculated by taking the total consideration of $15.7 billion and deducting the original goodwill of $10,806 million. The acquisition differential is allocated to both assets gotten and the liabilities assumed during the acquisition. They include cash and cash equivalents, accounts receivable, goodwill, intangible assets, accounts payable, unearned revenue and others as shown in exhibit 4. 

The intangible assets acquired during the period as a result of the acquisition were developed technology, customer relationships, and other purchased intangible assets which all amounted to $3252 million. The company do not amortize the goodwill amounts, but are tested for impairment annually during the fourth quarter. 

Accounting Policies

 Salesforce is one of the best dealers of company software that is yielded through the cloud. Its main focus is on managing consumer relations (Gupta et al., 2018). It employs the U.S generally accepted accounting principles in preparing its financial statements. 

The firm disclosed that it wants to put in practice new accounting standards in 2018. The new standards included the accounting standards codification (“ASC”) 606 which is “revenue from contracts with customers” (“ASC 606” or “606”) and ASC 340-40 (Lynch & Pryor, 2018). This captured other assets and deferred costs-contract with customers (“ASC 340-40” or “340”). 

The consolidated financial statements are inclusive of the Company and its wholly-owned subsidiaries. This indicates that the figures indicated in the consolidated financial statements are inclusive of Tableau’s financial details. This indicates that the accounting policy used in the preparation of Tableau must match that which Salesforce uses. 

Impact of Acquisition on Financial Statements

Impact on balance sheet in the year of acquisition

 The acquisition of the firm by Salesforce in August 2019 yielded positive results in certain assets and liabilities. The cash and cash equivalent increased from $2669 in 2019 to $4145 in 2020. There was also an increase in the net account receivable from $4924 million in 2019 to $6174 in 2020.  A positive movement was also witnessed the total amount of property, plant and equipment. Initially it was $2051, then it went up to $ 2375 million in 2020 as shown in Exhibit 1after the acquisition. For the liabilities account, there is a positive impact because both the short-term and long-term liabilities values have decreased. This has also impacted the total liabilities value positively. 

Impact on Cash flow statement on year of Acquisition

 Tableau was acquired in 2019, August. The consolidated cash flow statements as a result of its acquisition represents the figures 2019 and 2020. In 2020, the net cash received from operating activities was $4331. However, in 2019, it was $3398 (see Exhibit 3). This shows that the acquisition had a major impact on the operating activities. The amount spent by the company in the operating activities increased. This is because of the increase in size of the operating activities that Salesforce was focusing on after the acquisition. On the other hand, the investing activities and financing activities also faced the same ordeal. The financing amount decreased from $ 2010 n 2019 to $164 in 2020. The investing activities had a closing balance of $-5308 in 2019. In 2020, its closing balance in investing activities was $-2980. This indicates that Salesforce issued less long-term debt for financing purposes and this is why it has a decreased amount of net cash from its financing activities. The net cash in the investing activities has also reduced meaning in 2020, the company did not employ a lot of cash in investing. It can indicate that it was concentrating on ploughing back its profit first before investing to avoid losing more money. 

Impact on the Company’s Exposure to Foreign Currencies:

 Changes in exchange rates have a significant impact on organizations' operations and profitability in the current era of increasing globalization and heightened currency volatility. Risks due to fluctuations in the exchange rate are known as foreign exchange risks or exchange rate risks. The volatility of exchange rates affects not only multinational corporations, large corporations, and businesses that trade internationally, but also small and medium-sized businesses, such as those that only operate domestically (Hayes, 2021). For the sake of simplicity, foreign exchange risk is the risk that changes in the exchange rate between currencies will impact a Tableus' financial performance or position. 

Gains or losses of foreign investments can result from changes in the relative value of foreign assets due to the effects of foreign currency fluctuations. Foreign investments converted back into the local currency will have lower returns if the domestic currency rises. Alternatively, a declining home currency will result in higher returns on foreign investment in the home country. The strength of the U.S. dollar can also negatively affect Tableu commodity markets. A strong U.S. dollar may significantly reduce the company’s commodities’ global demand, since most commodities are priced in dollars (Hayes, 2021). Producers can experience lower earnings when demand is weak. 

Impact on Income Statement in the year of acquisition

 The company has experienced an increase in revenue of $3630 see (Exhibit 2). This is an indication that the acquisition affected the income statement. It is however, claimed that the acquisition should not affect the income statement since the transactions are recorded in the balance sheet. From an analyst perspective, it is very evident that an increment in revenue indicates an increased customer flow hence increasing the sales level. The gross profit has also increased from $9831 in 2019 to $12863 in 2020. This is a positive result that indicates that the acquisition was profitable. The net income however, reduced to a lot of expenses such as research and development which increased from 2019 to 2020 by $880 million, marketing and sales expenses which also had a significant increase as indicated in exhibit 2. Despite having a positive increase in revenue and gross profit, additional expenses as a result of the acquisition impacted net income negatively. 

Note Disclosures on Acquisitions

 In the 2020, financial reports under the business combinations, Salesforce has listed Tableau as the first company whose details of acquisition has been reported. The report has indicated all the details of assets and liabilities acquired, including disclosing the names of the intangible assets and the useful lives as at the date of acquisition. The report has clearly mentioned the date of acquisition which is August, 2019.

 It indicated that the transaction costs associated with the acquisition of Tableau was $40 million and were recorded in general and administrative expenses. Another detail is that the acquisition date fair value of the consideration transferred for Tableau was approximately $14.8 billion and the money consisted of Cash of $1, common stock issued which was $14552, and fair value of stock options and restricted stock awards assumed which amounted to $292. It indicates that the fair value of the stock assumed by the company was calculated using Black-Scholes option pricing model. All the details of Tableau’s financial results were included in the consolidated financial statements as from the date of acquisition. The company uses GAAP as its accounting policy, indicating that it used the same method when including Tableau’s results in the consolidated financial statements. 

Strategic Rationale for Acquisition

 The main reason why Salesforce acquired Tableau was to have the ability to give its customers freedom to undertake self-service and make decisions easily (Watson2018). It also acquired Tableau to ensure that managers, executives and front line employees get augmentation readily available to them. Therefore, one thing that must be noted is that Salesforce acquired the company to better its services to its customers. Also, the Tableau’s acquisition would make Salesforce to play a bigger role in enhancing digital transformation. This has an impact on companies around the world because their work will be made easier. They would only need to tap into data across their entire business and surface deeper insights in making intelligent decisions. It also impacts the field of innovation positively because it results to the increment of innovation. Tableau has a mission to extend its organizational goals in seeing people and companies understanding data. 

Based on the financial reports, the consolidated financial statement indicate an increase of revenue from $12,423 in 2019 to $16,043 in 2020. This indicates that the acquisition of the Tableau by Salesforce was worth it. The gross profit also increased from $9831 in 2019 to $12,863 in 2020. The costs of research and development has increased from $1886 in 2019 to $2766 in 2020 as a result of the increasing innovative activities by the two companies. The values are found in Exhibit 2. 

Exhibits

 Exhibit 1 Exhibit 2 Exhibit 3 Exhibit 4 Acquisition Differential for Tableau 

 Source: From Tableu  Balance Sheet. 

References

 Fynn Bruey, V. (2019). Development-induced displacement and homelessness in Seattle, Washington. Artha-Journal of Social Science, 18(2), 1-25. 

Gupta, R., Verma, S., & Janjua, K. (2018, August). Custom Application Development in Cloud Environment: Using Salesforce. In 2018 4th International Conference on Computing Sciences (ICCS) (pp. 23-27). IEEE. 

Hayes, A. (2021, September 13). Foreign currency effects definition. Investopedia. Retrieved April 13, 2022, from https://www.investopedia.com/terms/f/foreigncurrencyeffects.asp 

Lynch, N. C., & Pryor, C. R. (2018). The Impact of the New Revenue Recognition Guidance on Cloud Computing Arrangements. The CPA Journal, 88(6), 38-45. 

Nina, L. M. D. P. (2020). Salesforce (CRM): An ever-growing industry or a bubble about to burst? (Doctoral dissertation). 

Watson, H. J. (2018). Revisiting Ralph Sprague’s framework for developing decision support systems. Communications of the Association for Information Systems, 42(1), 13.