CRM Stock Alert: Why Salesforce Wants to Buy Informatica
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Salesforce (NYSE:CRM) is trending today on reports of the company being in late-stage talks to acquire Informatica (NYSE:INFA), which specializes in data-management systems. CRM stock is retreating on concerns about the cost of the possible deal and the impact it would have on operating margins. Meanwhile, INFA stock is falling after The Wall Street Journal noted that Informatica is talking about selling itself for less than its prior closing price of $38.48 per share.
This transaction “would add to Salesforce’s data integration and management capabilities,” per Bloomberg. “The companies could reach a deal as soon as within a week,” said anonymous sources familiar with the matter.
CRM Stock: Salesforce and the Potential Deal
In addition to boosting Salesforce’s revenue as well as its data integration and management capabilities, the potential Informatica acquisition would also eliminate one of Salesforce’s competitors. That’s because Salesforce’s large MuleSoft division is in the same business as Informatica.
Importantly, the amount of data being used by companies is also growing exponentially alongside the proliferation of artificial intelligence (AI). That is making accessing high-quality data more important than ever due to increased AI utilization. After all, the conclusions drawn by AI systems can be inaccurate and not very helpful when based on faulty or weak data. Given these points, Salesforce probably believes that Informatica’s data-management tools will become more valuable over the longer term.
That said, Informatica’s operating margin was only 5.9% last year, well below Salesforce’s 17.4%. Bernstein analyst Mark Moerdler related some concern about the potential deal, per MarketWatch:
“The acquisition would [not] necessarily be bad, but it would likely be both a departure from the company’s focus on margins and a continuing transition away from the company’s core in sales force automation.”
The Price Action of INFA and CRM Stock
As of this writing, CRM stock is retreating by around 5% to around $280 per share. Meanwhile, INFA stock is down by more than 7% to the $35 level.
So far this year, shares of CRM are up about 9% while INFA is up more than 30% year-to-date (YTD).
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines
