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Stock Analyst Update

Salesforce Pays Up for Mulesoft

The purchase price looks steep, but wide-moat Salesforce can achieve significant revenue synergies given its overlap with Mulesoft's largely enterprise customer base.


On March 20,  Salesforce (CRM) announced it had reached a definitive agreement to purchase integration platform-as-a-service provider Mulesoft. The $6.5 billion deal (depending on the price of Salesforce stock at the time of closing) will be financed with roughly 80% cash and 20% Salesforce stock, making this Salesforce’s largest acquisition to date. Salesforce plans to finance the cash portion of the deal using a combination of the firm’s $4.5 billion cash and investments war chest and $3 billion in term loans and senior notes. Although the purchase price looks steep, we think Salesforce can achieve significant revenue synergies given the 60% overlap with Mulesoft’s largely enterprise customer base (which totals more than 1,200 customers). Further, we believe Salesforce can accelerate Mulesoft’s growth trajectory with its expansive sales organization and partner ecosystem. The deal is slated to close in the second quarter, and we expect it to pass regulatory muster without incident. We are maintaining our wide moat rating for Salesforce, and our $145 fair value estimate is unchanged, as we believe Salesforce will successfully integrate the company and generate revenue synergies that will offset the acquisition cost in the long run. Shares are trading at a 16% discount to our fair value estimate and continue to represent one of the best investment opportunities in software, in our view.

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Rodney Nelson does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.