Salesforce Inc. announced this last Tuesday a definitive agreement to acquire MuleSoft Inc. for a whopping $6.5 billion. Because Salesforce was, however, an investor in Mulesoft’s Series E, F & G rounds, the net purchase price is probably much less than this amount.
MuleSoft, a company that specializes in application programming interfaces (API), enjoyed a successful initial public offering around this time last year at $17 a share. When word first leaked that the deal with Salesforce was being negotiated, investors drove the price of MuleSoft‘s shares up 20% before trading was halted. When trading resumed, MuleSoft was up about 21%, resulting in a market cap of $5.21 billion.
Reportedly, Salesforce will fund the deal with cash and about $3 billion in loans and debt issuances.
Why does this deal matter?
This is the largest-ever acquisition by Salesforce and reveals its vision of expanding beyond its core business model, CRM.
I would argue that Salesforce CRM is at this point a platform. People use it everyday and its value lies in all the cloud products it integrates. Mulesoft’s capabilities will complement the ease with which Salesforce integrates cloud tools.
Salesforce already owns the PaaS provider Heroku.
The acquisition expands Salesforce’s offerings into the IaaS and Paas markets, positioning the company closer to Oracle and IBM. It is plausible that the acquisition also has to do with the rivalry between the CEOs of Oracle and Salesforce. Larry Ellison and Mark Benioff are not exactly the best of friends. They both have big egos and have often been at each other’s throats.
Would it be a good idea to buy stock in now in Mulesoft or Salesforce?
It would be smart to buy Mulesoft and short Salesforce. Acquisitions like this are extremely capital intensive and acquiring companies can be prone to significant losses if a deal falls through.
It appears that the upside from the takeover has been fully priced into Mulesoft in after-hours trading, so there’s little room for additional profit.