August 19, 2022

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Salesforce ecosystem expected to more than triple in size by 2026

The Salesforce ecosystem – composed primarily of professional services firms – is expected to more than triple in size by 2026, according to research from investment bank Equiteq.

Equiteq’s Salesforce M&A report projects 3.5x growth by 2026 (from 2020 levels) for the Salesforce ecosystem of partners, which spans 124,000 experts and 350+ resellers. Approximately 61% of the ecosystem is professional services firms (business, IT, and data services), with the remaining portion composed of add-on apps and system software companies (22%) and infrastructure hardware companies (17%).

The Salesforce ecosystem is also expected to be over six times the size of Salesforce itself by the end of 2026, up from nearly five times today. Equiteq says the key limiting factor to growth is a talent shortage.

Numerous favorable trends are driving the ecosystem’s prospects. A major factor is Salesforce’s continuing growth and popularity. The firm accounts for approximately 20% of the customer relationship management software market and is the fastest-growing enterprise software company ever. Salesforce was the fastest software firm to reach $5 billion, $10 billion, $20 billion, and $32 billion (projected, 2023) in revenue.

Salesforce has the largest installed base (150,000 clients) in the sales/front office category and a software suite with unmatched breadth and depth. According to a Bank of America Securities analysis, the company has a long runway to sustain 17%+ organic growth in the coming years.

Wider trends in digital and cloud adoption, accelerated by pandemic challenges, are another factor supporting the ecosystem’s growth. Cloud-delivered software is projected to account for 61% of the software market by 2026, up from 43% today, according to Equiteq’s analysis.

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Growth prospects have translated to healthy valuations – with companies with exposure to Salesforce trading at a premium relative to the broader market. Select ecosystem partners (including Accenture, Capgemini, TCS, etc.) have public trading multiples (enterprise value to revenue in next 12 months) of 3.3x compared to 2.8x for the S&P 500.

Deal volume in the ecosystem has accelerated in the past few years, reaching a high of 33 deals in 2021 amid an economic rebound and strong growth prospects. Sixty-five percent of the 84 deals since 2017 were strategic buyers and over half of deals were closed by smaller emerging players – including emerging IT services firms and PE-backed portfolio companies.

Deal volume has been strong globally, with the Americas accounting for 73% of transactions.

The ecosystem deal environment has been primarily one of consolidation of a fragmented environment, with limited acquisitions of assets greater than $1 billion. Equiteq notes this is reflective of a wider IT services market where the number of $1 billion+ deals are limited.

With the ecosystem garnering significant interest from a wide range of high-quality buyers, sellers have significant optionality to find the right fit for their business, the report says. Suitors include large IT services firms, business consultancies, marketing firms, PE and PE portfolio firms, and Salesforce itself.