Breakingviews: Salesforce’s activist makeover faces trial by M&A

Marc Benioff’s taste for expansion turned Salesforce into a $265 billion giant. These same urges also led the software company into a series of ill-advised acquisitions and underperformance, prompting a swarm of activist investors to demand a makeover. A mooted purchase of $11 billion rival Informatica may show whether Benioff has changed his ways.

Starboard Value, ValueAct Capital, Third Point, Elliott Investment Management and others had good reason to push for change at Salesforce when they acquired stakes in 2022 and early 2023. The company had spent over $50 billion in five years on questionable deals. Operating margins were a quarter of rival Oracle’s . And total returns to investors lagged other software firms.

Benioff assuaged the activists by cutting costs, returning more capital to shareholders, appointing new members to the company’s board of directors and disbanding the board’s M&A committee. Total return to shareholders has been 55% over the past year. Most of the activists quickly declared victory and sold or reduced their stakes.

Now Benioff appears to be back in expansion mode. Salesforce is in advanced talks to buy Informatica, the Wall Street Journal reported on Friday, citing people familiar with the matter. A 7% drop in the company’s market value on Monday suggests investors are worried that the CEO is back to his bad habits.

Those concerns may be premature. In February, Salesforce initiated a dividend which will return about $1.5 billion to shareholders annually and allotted another $10 billion for buying back stock. ValueAct CEO Mason Morfit remains on the company’s board. Most importantly, the acquisition probably could make sense.

Informatica helps companies extract and clean up data, allowing them to analyze and use it. That probably complements MuleSoft, which Salesforce bought for $6.5 billion in 2018 and Breakingviews last year calculated was now worth about twice as much.

Informatica’s top line is growing at roughly the same pace as Salesforce’s, and if the buyer can cut 20% of its operating costs, Informatica’s EBITDA margins would be higher. The mooted price implies a multiple of 7 times Informatica’s estimated revenue over the next 12 months. That’s the same as Salesforce’s multiple and far below the absurd 26 times Salesforce paid for corporate messaging and employee-collaboration service Slack Technologies in 2021. Benioff’s makeover may prove to be more than skin deep.