Market Overview

Wall Street Reacts To Salesforce's $6.5-Billion Mulesoft Acquisition

Share:
Wall Street Reacts To Salesforce's $6.5-Billion Mulesoft Acquisition
Related CRM
Coupa Unveils New Partnership, Platform For 'Smarter Spending'
Benzinga's Top Upgrades, Downgrades For October 30, 2018
Has Everyone Become A Trader, FAANG Holder, Or DGI Investor? (Seeking Alpha)
Related
Benzinga's Top Upgrades, Downgrades For March 22, 2018
33 Biggest Movers From Yesterday

Salesforce.com, inc. (NYSE: CRM) confirmed after Tuesday's market close it has agreed to acquire Mulesoft Inc (NYSE: MULE) after a Reuters report suggested the two companies were in advanced merger talks. Hee's how sell-side analysts reacted to the $6.5-billion deal. 

The Analysts

  • Canaccord Genuity's Richard Davis maintains a Buy rating on Salesforce's stock with an unchanged $135 price target. Cannacord  downgraded Mulesoft's stock rating from Buy to Hold with a price target lifted from $33 to $42.
  • KeyBanc Capital Markets' Brent Bracelin maintains an Overweight rating on Salesforce with an unchanged $147 price target.
  • Stifel's Tom Roderick maintains a Buy rating on Salesforce's stock with an unchanged $142 price target.
  • Morgan Stanley's Keith Weiss maintains an Overweight rating on Salesforce's stock with an unchanged $140 price target.

Canaccord: A 'Logical' Move

Salesforce's move to acquire Mulesoft is "logical," as the combination of the two entities will improve the connectivity experience between and within Salesforce's ecosystem, Davis said in a research report.

Mulesoft's expertise in surfacing data across an organization's entire system will create "tremendous value" for Salesforce's clients, who in turn will be better able to serve customers, the analyst said. 

The $6.5-billion price tag on the deal implies an 11.9x EV/revenue multiple based on the analyst's calendar 2019 revenue estimate of $548 million. It is likely the revenue estimate is conservative and should be higher under Salesforce's ecosystem, which implies the acquisition price is "less than it looks on the surface," Davis said. 

Related Link: Salesforce CEO Talks $20B Revenue Target After Record Year

KeyBanc: Large Opportunity, High Cost

Mulesoft is considered to be a "highly unique asset" and could help extend Salesforce's presence beyond merely the "force.com platform," Bracelin said in a research report. In turn, Salesforce's customers will be given " a low-resistance way to refactor on-premise applications and enable multicloud deployments."

The acquisition is also the most expensive public software deal in recent memory at 15.6x the next 12 months' sales, the analyst said.

The acquisition implies that any operating margin improvements for Salesforce in fiscal 2019 are now lower, Bracelin said. 

Nevertheless, Salesforce's acquisition gives it a large opportunity to grow its market share and maintain its strategic importance as a vendor, so "investors will have to be comfortable with the price," Bracelin said. 

Stifel: Salesforce Overpaid For Deal That Makes Perfect Sense

It is possible that Salesforce simultaneously "overpaid" for Mulesoft in a deal that "makes perfect sense," Roderick said in a research report. On one hand, Salesforce paid 12x 2019 revenue — above the typical 6x to 10x range on 2019 revenue multiples for "quality, higher-growth [and] enterprise-grade SaaS companies."

On the other hand, Mulesoft is a valuable company that becomes "more valuable in the hands of Salesforce," the analyst said. Mulesoft's hybrid cloud architecture is specifically targeted to large-scale enterprise digital transformations, which is "front and center to the exact driver that is enabling Salesforce's business to thrive right now," Roderick said. 

Morgan Stanley: Difficult To Prove ROI 

Salesforce's acquisition of Mulesoft will give the company an incremental $10-billion total addressable market in addition to its existing $165 billion TAM, which could make it "difficult" to prove an acceptable return on investment, Morgan Stanley's Weiss said in a research report.

The initial product strategy is "a bit confusing," as Salesforce will offer a new Integration cloud while the existing Mulesoft Anypoint Platform remain in the market, the analyst said. 

The acquisition is "also outside the scope" of a typical Salesforce deal with a cloud-based software company, Weiss said. 

The financial impact of the merger will likely become more clear when the company provides updated guidance for the ASC 606 impacts on its fiscal 2019 on or before April 3, with more color possibly coming during its first-quarter conference call, according to Morgan Stanley. 

Related Link:

Jefferies Upgrades Salesforce.com On Strong Customer Demand

Photo courtesy of Salesforce. 

Latest Ratings for CRM

DateFirmActionFromTo
Oct 2018NomuraInitiates Coverage OnBuy
Sep 2018BairdMaintainsOutperformOutperform
Sep 2018Deutsche BankMaintainsBuyBuy

View More Analyst Ratings for CRM
View the Latest Analyst Ratings

Posted-In: Analyst Color News Downgrades Price Target Reiteration M&A Top Stories Analyst Ratings Best of Benzinga

 

Related Articles (CRM + MULE)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
JBLGoldman SachsUpgrades0.0
IMOBarclaysUpgrades0.0
JRVRKeefe Bruyette & WoodsDowngrades40.0
ADMPB. Riley FBRDowngrades2.5
EAFVertical GroupDowngrades9.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

Needham: Instructure Inc Price Closer To Reflecting Full Value of Fundamentals

Federal Reserve Hikes Interest Rates, Sees 2 More Hikes Coming In 2018