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Salesforce has been making waves on Wall Street having announced that it plans to acquire MuleSoft for $6.5 billion. The deal has not been good news for the CRM giant’s shares, which fell over 5% on the news.

MuleSoft provides one of the leading platforms for building application networks that connect enterprise apps, data and devices, across any cloud and on-premises. The plan is for it to power the new Salesforce Integration Cloud which will allow enterprises to survey any data, regardless of where it resides.

Why did Salesforce buy MuleSoft?

Part of MuleSoft’s attraction has been the sheer number of enterprises that already make use of it, among them Coca Cola, Barclays, Unilever and Mount Sinai.

“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,” explains Greg Schott, Chairman and CEO of MuleSoft.

Salesforce shares were down at under 115 at close of business on Friday, with many analysts expecting a resumption of selling on Monday. They were at 125 last week. It marks a tough week for leading tech shares as controversy continues to swirl around Facebook over the use and manipulation of data.

MuleSoft says it will continue to build toward the company’s vision of the application network with its Anypoint Platform as well as powering the Salesforce Integration Cloud.

Under the terms of the transaction, Salesforce will commence an exchange offer to acquire all the outstanding shares of MuleSoft. The transaction is expected to close in the second quarter of Salesforce’s fiscal year 2019, ending 31 July 2018.

How Salesforce plans to buy Mulesoft

Salesforce says it expects to fund the cash consideration with cash from its balance sheet plus approximately $3 billion of proceeds from a combination of term loans and/or the issuance of debt securities. The relative mix of each will depend on prevailing market conditions.

The price is considered to be too high by many analysts. It is the most expensive acquisition Salesforce and the share price has slumped markedly in the days of trading in Salesforce stock that have elapsed since the deal was announced.

One of the big concerns is that customers will want to use an independent vendor for the sorts of services that MuleSoft provides. Part of its value, and what underpinned much of its growth to date, was its true neutrality. MuleSoft interacts with many different programs across many different companies, and there will be concerns that the Salesforce acquisition will compromise this.

MuleSoft went public last year at a valuation of $3 billion, less than half of the price Salesforce has now bought it for. Even looking at growth to date and the valuations on some other deals in the software space, the MuleSoft acquisition looks a little too rich for Salesforce’s existing shareholders. There is also speculation that MuleSoft was the target of another buyer, and Salesforce had to outbid them.

Mulesoft is obviously going to be an important part of the overall Salesforce strategy going forward, but it may take Salesforce shares a while to recover from this one.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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