Decoding Salesforce’s plausible $11 billion bid to acquire Informatica

If the deal goes through, analysts claim that it would not only mean consolidation in the iPaaS market but also a new revenue source for Salesforce.

Salesforce’s reported bid to acquire enterprise data management vendor Informatica could mean consolidation for the integration platform-as-a-service (iPaaS) market and a new revenue stream for Salesforce, according to analysts.

“With this deal, Salesforce would be the dominant data integration company, making it the starting point for enterprises trying to bring disparate data sources together,” said Hyoun Park, chief analyst at Amalgam Insights.

The Wall Street Journal, citing sources, reported that Salesforce was looking to acquire Informatica with a deal value estimated at over $11.4 billion.

The deal could be a significant opportunity for Salesforce, according to Park, as it comes at a time when the average enterprise, especially the large ones, have over 1,000 applications and data sources, which throws up the challenge of cleaning up long-tail data and matching it with core enterprise data.

“This challenge requires tools with capabilities outside of what MuleSoft and Tableau can offer,” Park explained.

Salesforce via its offerings from MuleSoft competes in the iPaaS market along with vendors such as Informatica, Oracle, SAP, Microsoft, Boomi, IBM, TIBCO, and AWS.

The iPaaS market in 2023, according to a Gartner report, garnered a revenue of $8 billion globally, growing from $6.5 billion in 2022.

MuleSoft, acquired by Salesforce in 2018 for $5.7 billion, offers the Anypoint Platform — an iPaaS service — that offers integration, automation, and API management capabilities.

Some of the platform’s components include the Design Center, which enables enterprise users to create integrations and APIs, the Exchange that helps share integration assets, the Flex Gateway, API Manager, and API Governance modules to manage integrations.

Informatica offers similar services via its Intelligent Data Management Cloud (IDMC) platform. Some of the services and components of the platform include cloud API and application integration, Cloud B2B Gateway, Cloud Integration, API Manager and API Center, and data integration among others.

However, the possible acquisition of Informatica by Salesforce would be against expectations as consolidation if the iPaaS market was expected to occur among relatively smaller vendors, said Maribel Lopez, principal analyst at Lopez Research.

“This kind of a mega acquisition would take a big player out of the market and may make it easier for smaller iPaaS vendors to compete,” Lopez said.

Salesforce to capitalize on the GenAI demand

Salesforce’s possible bid to acquire Informatica could be a result of the company’s strategy to capitalize on the growing demand for generative AI, analysts said.

“Salesforce’s expected goal would be to provide the most comprehensive data management services as one of the big problems with AI deployments is to have access to clean and good data. In most cases, data is stuck in siloes throughout an enterprise and a combination of offerings from both vendors would entice enterprises,” Lopez said.

Informatica, according to Park, offers a broader set of tools than Mulesoft, especially in the areas of data quality, data security, and a variety of master data management offerings.

“Informatica would be an important piece of the puzzle for Salesforce customers trying to prepare an ecosystem for generative AI and other advanced data science projects,” Park said.

By 2026, more than 80% of enterprises will have used GenAI-based APIs or models, and/or deployed GenAI-enabled applications in production environments, up from less than 5% in 2023, according to Gartner.

The global spending on AI software is also expected to surge from $124 billion in 2022 to $297 billion in 2027, the market research firm said.

Additionally, Lopez said that the acquisition would not only help Salesforce secure a new customer base but also provide it with a new product stream to increase the stickiness of its data management offerings while growing its revenue.

These new customers for Salesforce are most likely to come from the financial services, healthcare, and airline sectors where Informatica has a better foothold, according to Pareekh Jain, principal analyst with Pareekh Consulting.

The acquisition, according to Jain, would help Salesforce compete with the likes of Snowflake, Databricks, and Oracle in the data cloud space.

Impact of the acquisition on product and pricing

The acquisition may not have an immediate effect on the product or pricing of Informatica’s products, analysts said.

Salesforce, according to Park, is more likely to follow the same strategy that it used in the Tableau and MuleSoft acquisitions where it was initially fairly hands-off with the product roadmap and development while its executives learned how to sell the products internally.

“After a 2-3 year period, one would expect most of the Informatica senior team to leave and be replaced by Salesforce-based managers and to start seeing increased integration between Salesforce data and new Informatica products,” Park said.

However, the analyst also added that history shows that Salesforce has provided guidance as these changes take place and Informatica customers should expect a heads-up for many of these moves to be telegraphed in advance to help with any necessary change management.

As far as Salesforce products or offerings are concerned, Park believes that the CRM software provider’s customers can expect an increased focus on the data layer and third-party data sources.

Also, an integration of MuleSoft’s and Informatica’s offerings later down the line, according to Jain, would allow Salesforce customers the option to consolidate their spending and probably get pricing benefits.

What Informatica has to gain or lose?

The possible bid for acquisition by Salesforce could be helpful for Informatica, at least its investors, analysts said.

The takeover bid, according to Lopez, would be beneficial for Informatica to counter its perceived inability to communicate a roadmap or strategy that would satisfy Wall Street.

Informatica’s total revenue for the last two financial years shows that the company has delivered a tepid growth. The enterprise data management vendor reported a total revenue of $1.5 billion and $1.6 billion for FY22 and FY23 respectively.

The tepid growth and the fact that Informatica is likely to be the near top of its current expected valuation, according to Park, would benefit its investors as a purchase would increase stakeholder value.

However, shares of both Salesforce and Informatica tanked 7% and 6% at the beginning of this week after speculations of the deal were reported.

Although there is no certainty that the news of the deal caused the shares to tank, experts claim that Informatica’s shares could have declined as it became a takeover target, fanning speculation that its shares would sell at a discount.

On the other hand, Salesforce’s shares may have declined due to its inconsistency in maintaining its strategy of steering away from inorganic growth via acquisitions and targeting organic growth.

The other thing that Informatica may lose if the deal goes through is some of its employees.

“One would assume that Salesforce would see some efficiencies of scale in sales, marketing, and cloud infrastructure resources. Sales and marketing currently make up half of Informatica’s payroll, so it is the most obvious starting point for cost cuts for Salesforce,” Park said.