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Salesforce quelled speculation on Monday that it had been involved in a bidding war for MuleSoft, revealing in a filing that competition was not a factor in driving the price up to a hefty $6.5 billion.
Rather, MuleSoft was just insisting that Salesforce pay up, and quickly.
According to the timeline published by Salesforce, the cloud software vendor originally offered $38 a share for MuleSoft on March 2, half in cash and half in stock. Five days later MuleSoft CEO Greg Schott came back to Salesforce's Marc Benioff and said the price tag was $45 a share, and that the deal had to be announced by March 19.
Salesforce agreed, and the deal was made public on March 20, at $44.89 a share, a 32 percent premium over MuleSoft's stock price from the day before. It was more than twice the size of Salesforce's prior biggest deal — its $2.8 billion purchase of Demandware in 2016 — and according to some analysts was the most expensive software deal in history on an enterprise value to revenue basis.
The price was so high that analysts speculated there must have been a competing offer from Google, Microsoft, Oracle or SAP. Salesforce Chief Financial Officer Mark Hawkins was even asked about other bids on the conference call following the announcement and said only that the details would be published soon.
In the case of Demandware, another company was already in talks to buy it when Salesforce began the negotiation process, according to a filing. Salesforce was also in talks to buy LinkedIn, which was ultimately acquired by Microsoft for $26.2 billion.
Monday's disclosure suggests that Salesforce executives are convinced that owning MuleSoft presents an opportunity for considerable growth.
Indeed, MuleSoft will almost triple in size by 2021 and turn profitable that year, according to projections provided by company management in the filing. And in a particularly detailed analysis, MuleSoft offered financial estimates all the way out to 2037, when the company expects to be 17 times bigger in terms of sales than it is today.
Salesforce said the deal "will provide significant long-term growth prospects and increased stockholder value for the combined company."
Acquisition talks between the companies began on Feb. 12, 10 days after a Salesforce executive, Executive Vice President John Somorjai, emailed Schott to request a meeting about "various commercial matters," according to Monday's filing. Somorjai suggested that Schott subsequently meet Benioff.
On Feb. 26, "Mr. Benioff asked Mr. Schott if the MuleSoft board of directors would be open to the possibility of considering a combination of the two companies," the filing said. "Mr. Schott responded that, although MuleSoft was not for sale, the MuleSoft board of directors would consider in good faith any reasonable offer it received from Salesforce."
Salesforce's board met on March 2, and authorized management to keep the negotiations going and submit a proposal to buy MuleSoft. The two companies signed a confidentiality agreement, and Salesforce presented MuleSoft with its initial $38 bid, which a few days later MuleSoft successfully pushed up by 18 percent.
On March 7 and 8, Somorjai called Schott to talk about the terms of a deal. Schott said the MuleSoft board only wanted cash, but Somorjai said a deal would have to include some Salesforce stock. It ultimately included 80 percent cash and 20 percent stock.
According to Salesforce's valuation analysis as conducted by Goldman Sachs, the company is paying 10.4 times forward revenue for MuleSoft, a multiple that, among relevant deals, is only eclipsed by the price-to-sales ratio of 12.2 that Cisco paid for AppDynamics last year.
Salesforce shares have dropped 7.8 percent since the deal was announced, falling more than the broader market. But even with the premium Salesforce is paying and the fact that no other bidders appear to have emerged, Kirk Materne, an analyst at Evercore ISI, expressed optimism on the purchase.
"We believe the potential upside from the deal when looking out to CY19 and beyond is underappreciated," wrote Materne, who has a "buy" rating on the stock. "We see the recent pullback creating an attractive entry point for long-term investors."