Morningstar | Salesforce Shopping Spree Continues; Acquiring Tableau
Salesforce.com announced the acquisition of Tableau in an all-stock transaction valued at $15.7 billion. Strategically, we view the transaction positively. Salesforce is gaining the leading solution for data visualization, which is clearly positive and reinforces our wide moat and positive moat trend ratings. On the flip side, Tableau is overwhelmingly not a software-as-a-service model, and Salesforce already offers an analytics tool in the form of Einstein. We believe management was looking for a more robust analytics tool set that could be used across more than just existing Salesforce solutions, which Tableau certainly should provide. We think this strengthens the company’s cross-selling capabilities.Tableau shareholders will receive 1.103 shares of Salesforce.com for every share of Tableau exchanged, which implies a deal price of around $172 based on a volume-weighted average of Salesforce's share price of $159. Salesforce should issue approximately 92 million shares to fund the deal. Both boards of directors have already approved the deal, which is expected to close in October. We do not believe the deal will face any unusual regulatory scrutiny. Salesforce shares are down approximately 5% on the news.
Our preliminary model of the combined company indicates no change to our $186 fair value estimate. Both companies have a similar long-term growth trajectory, so we anticipate similar growth rates but off of a larger combined base. We think margins will take a hit initially and then expand slightly faster. Beyond that, we still see growth slowing and margins expanding at a similar pace as our stand-alone Salesforce model, and ultimately arriving at the same place over the next 10 years.
Lastly, at 9.6 times 2020 consensus revenue, the deal is not cheap and is dilutive. Software in general is currently expensive, so this is no surprise, and the premium paid is not inconsistent with other larger deals over the last several years.
Salesforce.Com is engaged in customer relationship management technology. The company's Customer 360 is an integrated platform that unites sales, service, marketing, commerce, integration, analytics and more to give companies a single, shared view of their customers. Through its platform and other developer tools, the company also enables third parties to develop additional functionality and applications, or apps, that run on its platform, which are sold separately from or in conjunction with the company's service offerings. The company's cloud service offerings include sales cloud, service cloud, marketing and commerce cloud, and salesforce platform and other.
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