Salesforce’s Surprising Move: Informatica Acquisition Talks Raise Eyebrows

Salesforce (NYSE:CRM), the enterprise tech giant known for its customer relationship management products, is reportedly in advanced talks to acquire data processing company Informatica (INFA) in a deal that could be announced soon. The potential acquisition, estimated to carry a price tag of around $11 billion, has caught many investors by surprise, as Salesforce’s management had seemingly committed to focusing on profitable growth and capital returns following the tech crash of 2022.

The news comes after Salesforce’s recent efforts to address concerns raised by activist investors, including ValueAct Capital and Elliott Management, who questioned the company’s strategy and pushed for changes. In response, Salesforce implemented cost-cutting measures, increased share buybacks, and disbanded its M&A board committee.

Despite these moves, the potential acquisition of Informatica suggests that Salesforce is still open to strategic deals that could strengthen its market position and drive long-term growth.

Informatica's Offerings and Market Value

Informatica, founded in 1993, offers subscription-based data management services over the cloud and helps automate tasks for more than 5,000 active customers, including Unilever and Deloitte. The company’s shares have risen nearly 43% so far this year, valuing it at approximately $11.35 billion.

Private equity firm Permira and the Canadian Pension Plan Investment Board (CPPIB) currently hold a controlling stake of over 75% in Informatica. According to a source familiar with the matter, the price being discussed for the acquisition is below Informatica’s current share price of $38.48.

If the deal materializes, it would add depth to Salesforce’s platform portfolio and potentially drive synergies with its Mulesoft segment, which also offers data integration capabilities. However, the final price tag remains a key factor in determining the acquisition’s impact on Salesforce’s financial performance and investor sentiment.

Salesforce's Largest Acquisition Since Slack

If the deal goes through, it would be Salesforce’s biggest acquisition since its $28 billion purchase of workplace messaging app Slack Technologies in 2020. The potential acquisition has raised questions among investors, as Salesforce’s management had seemingly committed to a singular focus on profitable growth and capital returns following activist investor pressure in early 2023.

Despite the potential volatility surrounding the deal, some analysts believe that the acquisition could add depth to Salesforce’s platform portfolio and drive synergies with its Mulesoft segment. The proposed valuation of 6.7x sales also represents a substantial improvement from the company’s past deals, such as the Slack acquisition, which came at a 24x revenue multiple.

However, the acquisition’s impact on Salesforce’s profitability and growth prospects will depend on the company’s ability to integrate Informatica’s offerings and capitalize on cross-selling opportunities while maintaining a focus on operational efficiency and shareholder returns.

Investor Concerns and Analyst Outlook

The potential acquisition has raised concerns among some investors, as it may detract from Salesforce’s consistent messaging about its commitment to capital returns. However, analysts maintain a buy rating for Salesforce stock, citing the company’s long-term secular growth profile and potential for expanding profit margins.

While the deal may lead to short-term volatility in Salesforce’s stock price, it is not expected to pose a significant threat to the company’s bullish thesis. Analysts expect Salesforce to continue progressing towards driving expanding profit margins while rewarding shareholders with share repurchases and dividends.

The key risks associated with the potential acquisition include the possibility of revenue growth rates decelerating faster than expected, further dilutive M&A activity, and the uncertain impact of generative AI on Salesforce’s business and customer base.

The Road Ahead for Salesforce and Informatica

The potential acquisition of Informatica by Salesforce has caught the attention of investors and analysts alike. While the deal may raise questions about Salesforce’s commitment to capital returns, it is seen as a strategic move to bolster the company’s platform portfolio and drive synergies with its existing segments.

As the discussions between Salesforce and Informatica progress, investors will closely monitor the final price tag and the impact on Salesforce’s stock. Despite the potential volatility, analysts remain bullish on Salesforce’s long-term prospects, citing its secular growth profile and potential for expanding profit margins.

Ultimately, the success of the acquisition will depend on Salesforce’s ability to integrate Informatica’s offerings, drive synergies, and maintain a balance between growth and profitability while navigating the challenges posed by the evolving tech landscape, including the rise of generative AI.