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Salesforce Issues $2.5B Senior Notes for MuleSoft Buyout

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Salesforce.com, Inc. CRM yesterday issued $2.5 billion worth of senior notes. The proposed senior notes have been issued in two parts of different value as well as tenure. The offerings are anticipated to close on Apr 11.

The first part is worth $1 billion, with a maturity in 2023, and carries an interest rate of 3.25% payable semi-annually. The second part is worth $1.5 billion maturing in 2028 and bear an interest rate of 3.7%, that too payable semi-annually. The joint book-running managers for the offerings are BofA Merrill Lynch, J.P. Morgan, Barclays, Citigroup, Deutsche Bank and Wells Fargo Securities.

Salesforce intends to use the net proceeds from the aforementioned senior notes offering to partly fund the cash portion of its pending acquisition of MuleSoft Inc. MULE. Notably, last month, the companies entered into a cash-stock acquisition deal, wherein Salesforce is set to buy MuleSoft for an enterprise value of $6.5 billion.

Earlier, Salesforce had expected to fund the cash portion of the deal with its available cash in hand, and a $3-billion borrowing through term loans or issuance of debt securities. The lower amount of senior notes offering depicts the company’s sound financial position.

Notably, as of Jan 31, 2018, Salesforce had cash, cash equivalents and marketable securities of $4.52 billion, and during the last fiscal it generated operating cash flow of $2.74 billion and free cash flow of $2.2 billion.

Salesforce.com Inc Free Cash Flow (TTM)

Salesforce.com Inc Free Cash Flow (TTM) | Salesforce.com Inc Quote

The huge available cash balances, along with strong cash flow generating capability, have supported the company’s acquisition strategy. It should be noted that acquisitions have always been one of Salesforce’s key growth strategies. Although the company remained almost silent throughout 2017 on the acquisition front (just one — Sequence), this year it might repeat the likes of 2016, when Salesforce bought 12 companies, to boost its capabilities, and grab newer and larger markets. In this year, so far, the company has either bought or is in the midst of three acquisitions.

The MuleSoft buyout deal highlights Salesforce’s aggressive approach to attain the company’s target of reaching $20 billion in revenues by 2022. Cloud computing is a flourishing part in the technology space and has been gaining momentum, of late.  Therefore, Salesforce has been acquiring assets across the globe to achieve its long-term goals.

We believe Salesforce’s continued focus on expanding business through strategic acquisitions and investments will drive growth over the long run.

Salesforce currently has a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the same space are and VMware, Inc. VMW and ACI Worldwide, Inc. ACIW, both sporting a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rates for VMware and ACI Worldwide are projected at 12.3% and 12%, respectively.

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Vmware, Inc. (VMW) : Free Stock Analysis Report
 
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