Salesforce.com, Inc. (NYSE: CRM) stock was down 1.3 percent on Wednesday after the company announced a deal to buy Mulesoft Inc. ( MULE) for $6.5 billion. Despite the market’s negative initial response, analysts say the pricey deal is the right long-term move for Salesforce.
Salesforce is paying $44.89 for Mulesoft on a per-share basis, roughly a 36 percent premium to the stock’s Monday closing price. Rumors of the deal sent Mulesoft stock higher by more than 30 percent on Tuesday, and Salesforce confirmed details of the deal on Tuesday after the closing bell.
[See: 7 of the Best Stocks to Buy for 2018.]
Upon the deal’s completion, Mulesoft shareholders will receive $36 in cash and 0.0711 shares of CRM stock for each Mulesoft share they own. Salesforce estimated the deal will close by the end of its fiscal second quarter on July 31.
In a statement, Salesforce CEO Marc Benioff says Mulesoft’s technology will be a major boost for Salesforce’s cloud services offerings. Mulesoft’s software helps companies optimize network function by automatically integrating applications, devices and data. Mulesoft already serves more than 1,200 customers, including the Coca-Cola Co. ( KO) and Barclays ( BCS).
The initial drop in Salesforce’s share price suggests investors may feel Salesforce overpaid for Mulesoft, but analysts say the two companies will be a powerful combination.
“It is really a natural for Salesforce to own Mule,” Wedbush Securities analyst Steve Koenig[WD] said Tuesday, according to Reuters.
“Salesforce usually helps customers move to the cloud and digitally transform their business that often starts with CRM, so having Mule helps eliminate friction as customers transform their business and to provide a more complete solution.”
Morningstar analyst Rodney Nelson says Salesforce’s software-as-a-service portfolio adoption could get a major shot in the arm from the Mulesoft deal.
[See: 7 of the Best Tech Stocks to Buy for 2018.]
“Although the purchase price looks steep, we think Salesforce can achieve significant revenue synergies given the 60 percent overlap with Mulesoft’s largely enterprise customer base,” Nelson says. “Further, we believe Salesforce can accelerate Mulesoft’s growth trajectory with its expansive sales organization and partner ecosystem.”
Wedbush has an “outperform” rating and $140 price target for Salesforce. Morningstar has a “fairly valued” rating and $145 fair value estimate for CRM stock.
More from U.S. News
The 10 Best Financial ETFs You Can Buy
10 ETFs to Buy for Aggressive Growth
7 Under-the-Radar Financials to Buy for Income
Salesforce.com, inc. (CRM) Analysts Love Mulesoft Buyout originally appeared on usnews.com
