The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Robert Cyran

NEW YORK, May 27 (Reuters Breakingviews) - Salesforce CRM.N founder Marc Benioff has tested investors’ patience with costly M&A. His return to big-ticket dealmaking looks suitably chastened. The company’s $8 billion purchase of Informatica INFA.N, announced on Tuesday, diverges from troubled acquisitions like Slack Technologies. It’s cheap, may well prove profitable, and elides promises of near-mystical transformation.

Buoyed by years of robust growth and Benioff’s salesmanship, Salesforce became a distinctive giant of enterprise software. Things changed a few years ago, when bloated costs and wacky governance turns like installing co-CEOs soured the mood. Overpriced acquisitions like the $28 billion purchase of work collaboration service Slack, which has subsequently fallen well behind Microsoft’s home-grown alternative Teams, reached the limit.

Benioff, whose penchant for zen wisdom went as far as gathering a coterie of monks, saw his empire disrupted by pushy hedge funds. They helped refocus the company on a different kind of mindfulness. During the fiscal year ending in January, Salesforce earned $7 billion in pre-tax profit. That compares to under $1 billion a year prior to the arrival of the activists, even as top-line expansion has slowed.

Now, the company is making its biggest acquisition since Slack. Informatica helps big businesses extract data from disparate sources, analyze it, and act on it. It should be a good fit with Salesforce’s 2018 purchase of MuleSoft, which stitches together data and applications. Moreover, that deal looks to have gone well. Salesforce no longer breaks out MuleSoft’s results, but Breakingviews calculated in 2023 that the unit was worth about $11 billion, or nearly twice as much as Salesforce paid for it.

Informatica’s data-wrangling nous could even help the company’s efforts to sell artificial intelligence-infused software. Granted, slow revenue growth of around 3% year-over-year, along with its declining price tag, raises some concern. At $25 a share, Salesforce struck the deal at around where Informatica’s stock was trading as recently as February. The two were in talks last year at an $11 billion valuation, the Wall Street Journal reported.

Still, at about 5 times expected next-twelve-months’ revenue, according to LSEG data, the price is well below the absurd 26 times paid for Slack, and cheaper than Salesforce’s own multiple of 6 times. Assume the buyer can cut 20% of operating costs, around $180 million. Add that to Informatica’s projected operating profit of $600 million next year, tax the result, and the deal would generate a roughly 7% return on investment. That’s not a home run, but it’s not crazy, either. Benioff might have found his way to a more harmonious M&A playbook.

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CONTEXT NEWS

Salesforce said on May 27 that it had agreed to buy Informatica for approximately $8 billion, net of Salesforce’s current investment in the company. The sales productivity software company will pay $25 per share, a premium of about 30% to Informatica’s closing price on May 22, the day before news of renewed talks between the companies emerged.

Informatica is a software company that helps companies extract, clean up and analyze data. Private equity firm Permira and the Canadian Pension Plan Investment Board owned 63% of the company’s total voting power as of the end of April. A consortium that included the two institutions took Informatica private in 2015 for about $5.3 billion, before taking it public again in 2021.

(Editing by Jonathan Guilford; Production by Pranav Kiran)

((For previous columns by the author, Reuters customers can click on CYRAN/ robert.cyran@thomsonreuters.com))