Adobe acquires Magento for $1.68 billion

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In a move that will help it compete with Salesforce, Adobe has acquired Magento Commerce, a market-leading commerce platform, for $1.68 billion, subject to customary purchase price adjustments.

The Photoshop software provider is making its third-biggest acquisition to create an end-to-end system for designing digital ads, building e-commerce websites and other online customer experiences and completing transactions, the company said Monday in a statement

According to bloomberg, Adobe has sought to diversify from the digital media products that made it one of the world’s largest software companies. The deal is slightly smaller than Adobe’s 2009 purchase of Omniture, which made the company a player in digital advertising. The Magento purchase would see the company battle cloud-based commerce services from Salesforce, Oracle and SAP SE. This part of Adobe’s business, known as its Experience Cloud, generates less revenue and grows more slowly than its creative software offerings like Photoshop.

Magento has achieved approximately $150 million in annual revenue. Magento raised $250 million in funding from Hillhouse Capital. Let's assume that $180 million of that is still in the bank. If we do a simple back-of-the-envelope calculation, we can subtract this $180 million from the $1.68 billion, and determine that Magento was valued at roughly $1.5 billion, or a 10x revenue multiple on Magento's trailing twelve months of revenue. That is an incredible multiple for Magento, which is primarily a licensing business today.

Salesforce, which offers its own marketing, sales and service offerings in the cloud bought Demandware for more than $2 billion in 2016 to provide a similar set of functionality.