Salesforce may acquire Informatica for more than $11bn: Reports

Salesforce’s biggest acquisition was the $28bn purchase of Slack in 2021

Salesforce reportedly wants to buy artificial intelligence-powered cloud data management vendor Informatica, according to multiple news outlets, not long after its frequent acquisitions put Salesforce in the crosshairs of activist investors.

Should Salesforce – a San Francisco-based customer relationship management software vendor – buy its neighbour in Redwood City, Calif., the deal would be among the largest for the CRM software company, according to The Wall Street Journal.

Salesforce's biggest acquisition was the $28bn purchase of Slack in 2021.

An Informatica deal could come within a week, according to Bloomberg. The news comes shortly after reports of Google's parent company Alphabet looking to buy Salesforce rival HubSpot.

Salesforce reportedly eyes Informatica

CRN has reached out to Salesforce and Informatica for comment.

Salesforce has about 12,000 partners, according to the vendor. Informatica has a partner program for systems integrators, resellers and other business models, according to the company.

Salesforce has a market capitalisation of about $265bn. Informatica has a market capitalisation of about $10bn. It went public for a second time in 2021, and private equity firm Permira and the Canadian Pension Plan Investment Board (CPPIB) hold a controlling stake of more than 75 per cent in the vendor, according to Reuters.

Salesforce shares traded at about $275 Monday afternoon, down about 3 per cent from market opening. Informatica shares traded at about $35 a share Monday afternoon, down about 7 per cent from market opening.

Analysts weigh in

At least three analyst firms have written reports outlying pluses and minuses in a potential Salesforce-Informatica deal.

On Monday, William Blair analysts wrote about a potential deal favourably, saying in part that should the deal succeed, Salesforce becomes "more competitive with the data warehouses and data lakes like Snowflake."

"To be clear, we believe Salesforce still has a long way to go to achieve this and it will need to deliver from a product perspective, but we believe we are starting to see the strategy forming," according to the William Blair report.

It continued: "We believe it will ultimately position the company more favourably longer term to capitalise on the upcoming gen AI cycle over the next decade."

A potential deal could "weigh on Salesforce shares in the interim," according to William Blair, especially after Salesforce's enthusiasm for acquisitions and lack of attention on margins led to an offensive effort last year from activist investors including Elliott Investment Management and ValueAct Capital Partners.

The activists backed down after Salesforce conducted mass layoffs and a multi-year profitable growth framework.

Informatica forecasted $1.7bn in revenue in 2024 with 32 per cent operating and unlevered free cash flow margin, not using generally accepted accounting principles (GAAP), according to William Blair.

The firm said a potential acquisition could complement Salesforce's Data Cloud offering, a key part of the vendor's AI push.

"Informatica will help enhance the volume and relevancy of data that is inside Salesforce Data Cloud, which should drive value for customers who are looking to Salesforce to provide more holistic services to help power their gen AI applications," according to William Blair.

It continued: "As Salesforce has telegraphed, its near-term M&A strategy is focused on enhancing Data Cloud and the company's role in providing its customers the necessary tools to be successful in deploying gen AI. This is clearly the purpose of a potential acquisition of Informatica, which provides data management software to enterprises."

William Blair also said a potential acquisition would be complementary to Salesforce data integration subsidiary MuleSoft, bought in 2018 for about $6.5bn.

Salesforce watchers might question the price tag, which could be around $14bn, but if "gen AI is the long-term opportunity we believe it to be - and we do believe it is a significant opportunity - the price tag can be justified, especially if Informatica's data management capabilities can meaningfully improve Salesforce's positioning of Data Cloud and gen AI," according to William Blair.

Should a deal close, a possible hill in integrating the two businesses is Informatica's annual recurring revenue (ARR), of which 60 per cent or so is on premises, according to William Blair.

Only about 5 per cent of Informatica's $1bn on-premises ARR has migrated to the cloud to date, according to William Blair.

A second analyst firm, Bernstein, wrote in a report Sunday that "we believe that investors are not going to be happy and this acquisition could answer for many whether Salesforce can re-accelerate growth on their own." The firm put the potential price tag for Informatica at more than $11bn.

"Informatica's gross margin of ~79 per cent last year would not present a big issue but their operating margin of 5.9 per cent would," according to Bernstein.

Salesforce likely wants Informatica so that it can better compete with Microsoft, Oracle and Snowflake, according to the Bernstein report. "If Salesforce acquires Informatica, it could hurt Snowflakes's prospects."

In a report from KeyBanc, analysts said that Informatica could "fit nicely" in the holes in Salesforce's "technological capabilities in the movement and cleansing of data." The analysts viewed a potential Informatica acquisition "positively from a strategic point of view."

On the plus side, "interest in Informatica may signal that there is more demand for Data Cloud and AI-related workloads than Salesforce can currently handle and getting technology in place sooner rather than building it organically is every bit a capacity calculation as it is a strategic one," according to KeyBanc.

However, the potential acquisition interest may signal "that the current Data Cloud offering is not able to deliver what is needed for the Company to fully realise the goodness from the coming AI trend and an acquisition is a stop-gap," according to the report.