Salesforce (CRM, Financial) and Informatica (INFA, Financial) are experiencing a downturn in their stock prices today, despite ongoing discussions about a potential acquisition deal. Reports have surfaced that CRM is considering buying INFA, which has a market capitalization of approximately $10.5 billion. This deal could be CRM's most significant acquisition since its $27.7 billion purchase of Slack in 2021.
Under normal circumstances, news of a potential takeover would boost the share price of the acquired company. However, INFA's shares are falling sharply, more so than CRM's. This is attributed to CRM's intention to buy INFA at a price below its last closing price of $38.50. Investors are also skeptical about CRM's timing for the acquisition, given INFA's high valuation and its integration into CRM's future plans involving generative AI.
- INFA specializes in AI-powered data management cloud platforms, enabling customers to integrate various types of enterprise data for cloud analytics strategies. This focus has propelled INFA's shares due to the burgeoning interest in AI technology.
- Despite the AI boom, INFA's revenue growth has been modest, with an 11.6% year-over-year increase in Q4 and a 6.0% rise for FY23. Its forecast for FY24 predicts a slight 6.3% revenue increase, raising concerns among CRM investors about the potential overvaluation in the acquisition deal.
- CRM's consideration of this acquisition comes at a time of cautious spending, which has affected its revenue outlook for FY25. The company's CFO, Amy Weaver, noted the delayed impact of a subdued buying environment on subscription revenues.
- An offer of approximately $35.00/share for INFA would mean a 6x forward sales multiple for CRM, aligning with its valuation. The acquisition could fortify CRM's position in the customer relationship management sector, leveraging INFA's technology and its client base, including notable names like Marathon Oil (MRO, Financial) and Lenovo (LNVGY, Financial).
The ongoing merger discussions between CRM and INFA have led to a negative market reaction from both sets of shareholders. CRM investors are wary of the acquisition cost, while INFA shareholders are disappointed with the offer's below-market value. Despite today's market response, the merger could be mutually beneficial, enhancing both companies' offerings in complementary business areas. The key question remains whether the broader spending environment will improve to support such strategic moves.
