Salesforce (CRM) agreed to purchase integration software company MuleSoft (MULE) for $6.5 billion in a cash and stock deal. This acquisition is expected to help Salesforce expand its offerings beyond customer relations software.
It also brings an opportunity for the company, which competes with giants like Microsoft and Oracle, to add new technologies to its cloud-based solutions.
MuleSoft has around 1,200 customers, which include McDonald’s, Coca-Cola and Barclays. Once Salesforce takes over MuleSoft, it will be able to offer them complementary products in addition to MuleSoft’s offerings.
Salesforce said that the integration of MuleSoft would be a strategic priority for the company. The addition of MuleSoft could help revive Salesforce’s growth, which has slowed down in recent times.
The integration software market is estimated to be worth around $30 billion in the long run. Salesforce expects that with the help of MuleSoft, it will be able to create an integrated cloud service that combines private and public solutions and applications.
MuleSoft also eases the creation of custom applications and would help in augmenting Salesforce’s Platform-as-a-service portfolio which creates custom-made apps. Salesforce could also combine MuleSoft’s offerings with its Integration Cloud service that allows customers easy access to their work data irrespective of where it is stored.
The transaction will also aid Salesforce in targeting different sectors such as healthcare and financial services. As a result of the acquisition, Salesforce has increased its 2022 revenue target to $23 billion from $21 billion.
However, there are concerns over the deal, the first one being the purchase price which is said to be at a 36% premium to MuleSoft’s stock price. This acquisition is the biggest one Salesforce has ever made, bigger than its 2016 acquisition of Demandware, and the justification for paying such a high price is inadequate.
Another point of contention is valuation. MuleSoft had a valuation of $3 billion on its IPO last year, and Salesforce is attributing it double this value now. Although sales have grown over the past year, this pace of growth is expected to slow down going forward. Salesforce, however, has said MuleSoft enjoys a strong position in a category that is growing rapidly.
It is likely that Salesforce wanted to pick up MuleSoft before any of its larger rivals realized the latter’s potential and swooped in.
Then the question arises of how MuleSoft will function from within the Salesforce family. One of MuleSoft’s valued features was its neutrality or independence, and although MuleSoft has assured that it will maintain independence as much as possible, it remains to be seen how this will turn out in future.
Following the deal announcement, MuleSoft’s stock jumped more than 25% while Salesforce’s stock dropped around 2%.