Cloud-based customer relationship management platform salesforce.com (CRM 3.44%) announced a definitive agreement to acquire information technology company MuleSoft (MULE +0.00%) this week, sending MuleSoft shares skyrocketing a total of about 30% higher in the last two trading days as of the time of this writing. Representing Salesforce's largest acquisition ever, investors have good reason to take a close look at the deal.
Here's what investors should know.
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The deal
The deal will consist of both cash and equity. Salesforce said it will pay $36 in cash and 0.0711 shares of Salesforce per MuleSoft Class A and Class B common share. This amounts to a total of $44.89 per MuleSoft share at the time of the announcement and a 36% premium over MuleSoft's closing price on March 19.
About MuleSoft
MuleSoft is a leading integration platform that uses an API (application program interface)-led approach to connecting organizations to application, data, and devices.
With $297 million in annual revenue last year, MuleSoft is significantly smaller than Salesforce, which raked in about $10.5 billion in revenue in the company's trailing-12-month reported period.
Tapping into more growth
What MuleSoft has going for it is its growth. MuleSoft revenue jumped 58% year over year in 2017. And fourth-quarter revenue was up 60% year over year.
This growth is well ahead of Salesforce's revenue growth recently. Revenue in Salesforce's fiscal 2018 climbed 25% year over year. And management expects this growth to decelerate, as it is guiding for 20% to 21% revenue growth in fiscal 2018. Salesforce's guidance, though, consistently proves to be conservative.
With MuleSoft's revenue growth well above Salesforce's, the acquisition would help fuel Salesforce's growth ambitions. Indeed, growth seems to be a major focus of the acquisition, as Salesforce said in its press release about the deal that MuleSoft "will be able to accelerate its growth and deliver even more innovation to its customers at scale."
But MuleSoft is still facing headwinds when it comes to profitability. For instance, MuleSoft's fourth-quarter non-GAAP operating loss of $16 million was wider than its $11 million loss in the year-ago quarter. Similarly, its full-year 2017 non-GAAP operating loss was about $80 million -- wider than a loss of $48 million in 2016.
The plan
Salesforce said MuleSoft will power a "new Salesforce Integration Cloud," or a segment that enables enterprises to surface data and "drive deep intelligent customer experiences throughout a personalized 1:1 journey."
This would expand Salesforce's existing subscription and support revenue segments, which currently include its sales cloud, service cloud, Salesforce platform and other, and marketing and commerce cloud.
The deal would also notably bring over 1,200 customers under Salesforce's business, including some major customers like Coca-Cola and Unilever.
Pending customary closing conditions, Salesforce and MuleSoft expect the acquisition to close sometime in the second quarter of Salesforce's fiscal 2019 -- a period that ends July 31, 2018.
