- Salesforce plans to acquire MuleSoft for $6.5 billion, but analysts aren't sure that it's worth it.
- Analysts are concerned that Salesforce won't be able to use MuleSoft's on-premise licensing product — a core part of its business — and that customers may not respond well to the acquisition.
- Others think the price comes down to other buyers, since MuleSoft is one of a kind in the market.
- Salesforce's shares have slid more than 5% since the deal was announced.
Saleforce's planned acquisition of MuleSoft, announced Tuesday, has been a hit with Wall Street analysts — except when it comes to the steep $6.5 billion price tag.
MuleSoft, which trades publicly, was valued at about $4.3 billion and $33.04 a share when markets opened Tuesday. Salesforce's offer values the company at $36 a share, plus equity in Salesforce.
Altogether this deal is worth about $44.89 a share, for a 36% premium on MuleSoft's stock value, according to Terry Tillman, an analyst at SunTrust Robinson Humphrey.
Scott Berg at Needham suggested it could be "the most expensive transaction ever of a public software company," and Tillman highlighted that it was Salesforce's largest acquisition to date, far ahead of its $2.8 billion acquisition of Demandware in 2016.
MuleSoft provides tools to help companies integrate the various pieces of software they use. Since the deal was announced earlier this week, Salesforce's shares have slid more than 5%.
The deal is expected to close in July. It's worth noting that Salesforce's investors have a history of agitating against deals they don't like. Salesforce CEO Marc Benioff acknowledged in 2016 that he backed away from deal talks with Twitter after investors protested. That seems unlikely to happen with MuleSoft, given that the transaction has already been approved by both companies' boards, but the logic of a Salesforce-MuleSoft combination is raising questions among some analysts.
Salesforce could drop MuleSoft's on-premise product entirely
Berg wrote that while his team understands Salesforce's interest in MuleSoft's technology, he believes "the purchase price to be too rich," and questions what Salesforce — which exclusively sells cloud-based products — will do with MuleSoft's on-premise license offering, which makes up a substantial portion of the company's revenue.
Berg told Business Insider that he expected Salesforce to stop selling the on-premise product, a move that would force customers to either stop doing business with MuleSoft or switch to the cloud product.
Keith Weiss at Morgan Stanley also questioned whether Salesforce would be able to get a return on its investment.
Weiss shared the same concerns with Berg over what Salesforce would do with MuleSoft's on-premise product offerings but said "the most notable risk post acquisition likely revolves around customer perception of MuleSoft losing its 'neutrality' as an integration platform."
Salesforce is a competitive company, including with some of MuleSoft's partners like Microsoft and SAP, and Weiss thinks this may scare away some customers, despite management's assurances during its announcement call that MuleSoft would remain neutral.
Analysts think the high price came down to other potential buyers
Tillman was more confident that Salesforce would make up for the price by enhancing its customer experience, while accelerating its path to hitting more than $20 billion in annual revenue. The price, Tillman wrote, most likely reflects MuleSoft's desirability to other acquisitive companies.
"We assume based on the deal valuation there was likely meaningful interest by other parties. It's definitely a high valuation level but we believe Salesforce can drive significant revenue synergies and help the MuleSoft business achieve $1 billion in revenue much faster than it could on a standalone basis," Tillman said in a note Wednesday.
Raimo Lenschow at Barclays seconded the idea that the $6.5 billion figure came down to competition for MuleSoft.
"We believe the healthy price is driven by the scarcity value of MuleSoft as it is the only real next-gen integration vendor in the market. Hence, we view the announced acquisition as a positive for the name," Lenschow wrote.
