Domo, a Utah-based data-analytics company currently valued on the public markets at just shy of $1 billion, is expected by many analysts to be the next big cloud acquisition target. But sources tell Business Insider the company's CEO Josh James, who has majority voting power, is reluctant to sell — despite encouragement from bankers.
The company faced hurdles early on in the coronavirus crisis, slashing its headcount by a reported 10% as part of a $30 million cost-saving plan, even as Morgan Stanley speculated that the situation might exacerbate some of Domo's pre-existing problems when it came to its closing deals.
But Domo seems to have rebounded, with the company reporting better-than-expected first-quarter results on Thursday. Shares closed more than 10% higher on Friday, sending its market cap up to about $925 million — quadruple what it was at its 52-week low.
Meanwhile, the company was in the spotlight amid the crisis, with Vice President Mike Pence highlighting the company's work with the Iowa state government to expand access to COVID-19 testing.
Regardless of Domo's newly-solid footing, however, it's long been eyed as a potential takeover target. Earlier this year, analysts identified Domo as a likely candidate to be the next big cloud acquisition, especially after Salesforce bought Tableau, a major rival to the company, and Google snatched up the similar Looker.
As one analyst recently told Business Insider, Domo is "one of those companies that it's kind of surprising that it hasn't been acquired yet." Industry analyst Ray Wang of Constellation Research identified SAP and Google as potential acquirers, while other names that have come up include Amazon Web Services and Salesforce.
Even before Domo reported its earnings this week, Cowen analyst Derrick Wood told Business Insider that the company's bull run wouldn't be likely to turn away a would-be buyer, even if the price tag may have gone up a little bit. Wang recently estimated that Domo could fetch a price tag as high as $1.5 billion in a potential acquisition.
But James has been heavily disinclined to sell, two banking sources told Business Insider. He would apparently prefer that Domo builds a tech empire of its very own: He's always "wanted to prove he's not just a founder, but a CEO," said a source who works for a Domo competitor. Domo declined to comment on potential M&A activity.
"Josh has said numerous times he would love to be running Domo when he's 70 years old; but he's also said numerous times he will always look at any acquisition offer that comes along as it is the responsibility that he has to shareholders," Domo spokeswoman Julie Kehoe said. "It is a fact that in some cases for some companies it makes sense to join forces with an acquirer."
Independent streak
Sources tell Business Insider that James sees himself as a big name like Salesforce CEO Marc Benioff in the making, and has always wanted to prove he can be a successful CEO, not just a founder who sells his companies — and Domo's recent rebound helps make the case for staying independent.
The two bankers, who have worked with Domo in the past, told Business Insider that James has indicated he wanted Domo to stay independent. James owned nearly all of Domo's voting power at the time of the company's IPO in June 2018.
Prior to Domo, James was best known for selling his previous company Omniture to Adobe for $1.8 billion in 2009.
He was resistant to making that deal at first: A securities filing from the Omniture acquisition shows James first declined Adobe CEO Shantanu Narayen's advances, saying he preferred to discuss "partnership opportunities." Narayen kept pressing, and two months later, James relented and formal acquisition talks began.
James now wishes he kept the company independent, a source close to the company said. Bankers have informally approached James with encouragement to sell Domo, but James has rebuffed the idea, the two banking sources say.
Kehoe, the Domo spokeswoman, said "Josh feels great about the acquisition of Omniture to Adobe and how it became a bright shining star and a big chunk of Adobe's overall strategy and business. Josh and his team built it into a mature, meaningful, standalone business after running it for thirteen years and three years as a public company. It was the second biggest SaaS company after Salesforce and was on pace to do a robust $500m in revenue. It was profitable and already kicking off $100m a year in cash flow."
James has also shown signs in the last several months of being at least open to discussions about a possible acquisition.
Asked during the company's Domopalooza conference in March whether it was time to considering selling the business to a larger vendor like SAP or Oracle or Microsoft, James said: "We always take inbounds when we come. I'm certainly not opposed to selling the company. He added: "Do I want to sell? No, I don't want to sell, but there's the reality of also having to face whatever is taking place with your ability to execute out there in the marketplace."
He also said, "I didn't sell Omniture too early. I sold Omniture when we felt like we should have sold Omniture and it was the right time."
So who would buy?
Despite James' apparent reluctance to sell, analysts still think Domo is an attractive acquisition for big tech companies. The acquisitions of Tableau and Looker prove that data analytics is a hot market, with Domo as one of the last large independent companies. This means that Domo could be a benefit to just about any buyer.
SAP seems like a likely suitor. Domo Chief Financial Officer Bruce Felt's previous company SuccessFactors, where he was also CEO, sold to SAP for $3.4 billion back in 2012. Meanwhile, Domo frequently partners with SAP-owned Qualtrics, which is also headquartered in the Provo, Utah area.
On the other hand, Constellation analyst Wang thinks that neither Salesforce nor Amazon Web Services may be especially inclined to buy. Salesforce just spent $15.3 billion on Tableau in its biggest deal ever, meaning it might be disinclined to write another large check for a similar company, Wang notes. AWS, meanwhile, rarely makes large acquisitions, preferring instead to build technology in-house as much as possible, Wang said.
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