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Salesforce: Our Initial High-Level View of Possible Informatica Acquisition Is Negative

Since there is no official announcement, we are addressing the news without context such as deal price, rationale, or longer-term plans.

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Informatica Inc
Salesforce Inc

Key Morningstar Metrics for Salesforce

Key Morningstar Metrics for Informatica

Late on April 12, The Wall Street Journal reported that Salesforce CRM was in talks to acquire Informatica INFA. Since there is no official announcement, we are addressing the report without context such as deal price, rationale, or longer-term plans. With no real information to assess, we maintain our fair value estimate of $300 per share for Salesforce and see its stock as slightly undervalued after the April 15 selloff.

Our initial reaction to this possible deal (again, with no deal terms to parse) at a high level is negative because Informatica grows more slowly and has lower non-GAAP operating margins than Salesforce. We also remember investor discontent around Salesforce’s acquisition activity, which resulted in substantial changes, including structurally higher margins, an entirely new share-buyback program, a dividend, and a vastly scaled-back acquisition program. We think margin improvements, a slowdown in M&A, and a cessation of large deals altogether were the key elements of that process.

On this last point, a $10 billion-$13 billion acquisition is not all that material compared with Salesforce’s $265 billion market cap, but it’s seemingly a reversion to larger deals, which investors emphatically do not want. Management previously went so far as to disband its M&A committee. Salesforce could have done this deal a year ago for perhaps half the valuation that Informatica now commands, which gives the rumored acquisition a reactionary feel.

We see the strategic rationale for combining Informatica’s data integration platform with Salesforce’s Data Cloud, and in this light, we are more upbeat. Salesforce acquired MuleSoft partly to make it easier for customers to connect applications, and this potential deal would be along similar lines. As customers grapple with how to use artificial intelligence, data has become more important; Informatica’s platform would help in this regard.

Salesforce Stock vs. Morningstar Fair Value Estimate

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Dan Romanoff

Senior Equity Analyst
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Dan Romanoff, CPA, is a senior equity research analyst on the technology, media, and telecommunications team for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers software.

Before Joining Morningstar in 2019, Romanoff spent 12 years in buy-side equity research covering the technology and telecommunications sectors, most recently at Holland Capital Management. Prior to that, he spent five years in sell-side equity research as an associate analyst at UBS and a senior analyst at Credit Suisse covering various areas within technology, including hardware, software, and semiconductors. Romanoff also has worked as an auditor and in valuation services for major public accounting firms.

Romanoff holds a bachelor’s degree in accountancy and a Master of Business Administration in finance, both from the University of Illinois at Urbana-Champaign. He also holds the Certified Public Accountant and Accredited in Business Valuation designations.

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