Salesforce to buy MuleSoft for $5.9bn

May 2018 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

May 2018 Issue

American cloud computing company Salesforce.com, Inc is to acquire software firm MuleSoft for $5.9bn in a cash and stock deal. Including existing debt, the total enterprise value of the deal will be $6.5bn, a record for the cloud software industry.

Under the terms of the agreement, Salesforce will pay $36 in cash and 0.0711 of a Salesforce share, or $44.89 per share, a premium of 36 percent to MuleSoft’s share price on Monday 19 March, the day before the deal was announced. The transaction is expected to close in the second quarter of Salesforce’s fiscal year 2019, which ends 31 July 2018, though the deal is still subject to the satisfaction of customary closing conditions and the approval of MuleSoft’s shareholders.

The deal is the third acquisition for Salesforce in 2018. It acquired Attic Labs and CloudCraze in March to boost its business to business e-commerce offering. Financial details were not disclosed in either deal.

“Every digital transformation starts and ends with the customer,” said Marc Benioff, chairman and chief executive of Salesforce. “Together, Salesforce and MuleSoft will enable customers to connect all of the information throughout their enterprise across all public and private clouds and data sources – radically enhancing innovation. I am thrilled to welcome MuleSoft to the Salesforce Ohana.”

“With the full power of Salesforce behind us, we have a tremendous opportunity to realize our vision of the application network even faster and at scale,” said Greg Schott, MuleSoft chairman and chief executive. “Together, Salesforce and MuleSoft will accelerate our customers’ digital transformations enabling them to unlock their data across any application or endpoint.”

Salesforce holds more than 18 percent of the global customer relationship management software market, followed by Oracle Corp with 9.4 percent, according to IDC. MuleSoft’s 1200 customers, including a number of high-profile organisations such as Coca-Cola, VMware, GE, Accenture, Airbus, AT&T and Cisco, as well as its API integration engine, have made it an attractive proposition for Saleforce as it develops its AI and machine learning divisions. Indeed, the acquisition will cement Salesforce’s position as a leader in digitisation by enabling its customers to participate in the so-called ‘API-economy’, which allows businesses to open up their systems to encourage internal users, business partners and third-party developers to extend their services.

Salesforce expects to finance the cash portion of the deal with cash from its balance sheet and proceeds from a combination of term loans and the issuance of debt securities. The company has obtained a commitment from BofA Merrill Lynch for a $3bn bridge loan facility.

MuleSoft reported annual revenue of $296.46m in 2017; as such, Salesforce is buying the company at nearly 21 times revenue. It is possible that the company paid over the odds for Salesforce to hold off rival bidders. In 2005, the company lost out to Microsoft in bidding for LinkedIn Corp., and Salesforce was keen to avoid a similar situation with its pursuit of Mulesoft, whose sales grew nearly 58 percent in 2017 making it an attractive takeover proposition for potential suitors. Fourth quarter revenue was up 60 percent year-on-year. However, Mulesoft’s growth rate is expected to slow to less than 40 percent in the coming years, according to some analysts.

MuleSoft, which went public in March 2017, had an operating loss of $25.5m in its fourth quarter, a significant increase from $12.8m in the same quarter of the previous year. Similarly, its full-year 2017 non-GAAP operating loss was around $80m, up from $48m in 2016.

The size of the merger could have implications for the cloud software industry going forward. Some analysts have suggested that the size of the deal could raise the price of future transactions in the industry. Valuations in the software space have been slowly increasing over the last two years, and though the Mulesoft acquisition alone will not necessarily drive prices up, it could help trigger a bidding war which leads to inflated prices in the future.

Richard Summerfield