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Why MuleSoft Inc. Stock Rocketed Higher Today

By Timothy Green - Mar 20, 2018 at 4:45PM

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A software giant is reportedly interested in a buyout.

What happened

Shares of MuleSoft Inc. ( MULE ) jumped Tuesday after Reuters reported that ( CRM -0.26% ) was in advanced discussions to acquire the software company. MuleSoft stock was up about 27% at 3:50 p.m. EDT, while shares of Salesforce were up about 0.2%.

So what

An acquisition of MuleSoft would be Salesforce's largest deal to date, with Reuters' sources putting the price tag north of $6 billion. An announcement could come as early as this week, although no agreement has been finalized at this point.

The MuleSoft logo on a glass wall in MuleSoft's offices.

Image source: MuleSoft.

MuleSoft is a relatively small company, with just $296 million of revenue in 2017, although it is growing quickly. The company is also unprofitable, posting a net loss of $80 million last year. Salesforce would be paying over 20 times annual sales if the $6 billion deal price is accurate.

Salesforce's strategy is all about growth, and it hasn't been shy about using acquisitions to prop up its growth rate. The company has spent nearly $6 billion on acquisitions in the past five years; a deal for MuleSoft would double that total.

Now what

A MuleSoft acquisition would help Salesforce diversify as it aims to reach $20 billion of annual revenue by 2022. MuleSoft specializes in software aimed at building and managing application programing interfaces and integrations between different applications and data sources. The company's technology could help Salesforce strengthen its ecosystem of products.

If a deal does go through, Salesforce will be paying an extremely high price for MuleSoft.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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