Chart Signals Some Concerns That Salesforce.com Is Overpaying For Tableau Data and Growth

It is not usual for an acquirer to see their stock drop on an announcement that they are making a large acquisition. After all, the acquiring company is technically diluting their shareholders in many cases. And there are things such as regulatory risks, integration risks, and potential culture clashes of the acquiring company and the employees of the company being acquired. That said, there have been many acquisitions of late where an acquirer was shown to get instant shareholder approval by an immediate stock price gain after making an acquisition announcement.

When the announcement was made that the enterprise and cloud software giant Salesforce.com Inc. (NYSE: CRM) was acquiring Tableau Software, Inc. (NYSE: DATA) for $15.3 billion in an all-stock transaction, it might not be surprising to market historians that Salesforce.com’s shares fell. The problem is how much the shares fell, and how the shares react in the coming days could pose a threat to the long-term direction for Salesforce.com shares.

With a San Francisco tech giant like Salesforce.com trying to integrate this Seattle-based data visualization player, some issues may be there around the price paid to make the acquisition. Tableau Data’s acquisition price of $15.3 billion generated close to a 35% premium for the stock. At over $165 on last look, the purchase price was versus a more recent $112.50 share price and was a handy premium to the recent and all-time high of about $132.50 prior to this move.

As far as the $15.3 billion purchase price, that was before the Salesforce.com stock reaction and it is versus $125 billion pre-drop value for Salesforce.com measured by market cap. Salesforce.com, which does not have a calendar year-end had $13.3 billion in FY2019 revenues and the consensus from Refinitiv is for $16.1 billion in sales this year and $19.3 billion next year.

Tableau Software had $983 million in 2018 revenues, and is projected by the analysts in the Refinitiv universe to have revenues of $1.37 billion in 2019 and $1.64 billion in 2019.

The good news so far is that, after its stock was down as much 8% in early trading, Salesforce.com shares were down about 6% at $151.50 on last look.

By acquiring Tableau Software for its solid position in as an analytics platform, Salesforce.com should be able to juice up its current product offerings around sales, marketing, costs, operations, and around customer service.

The proposed acquisition is not expected to close immediately, but it was projected to negatively impact 2020 non-GAAP earnings by $0.37 to $0.39 per share. That is against last year’s non-GAAP earnings of $1.43 per share last year.

For those industry watchers who look for the next perfect mergers, Tableau Data had previously been mentioned in prior years as a potential acquisition target. The difference between then and now was billions of dollars in market cap, but that is true for both companies. This deal also exponentially trumps the Salesforce.com acquisition of Mulesoft and of Demandware.

For pure technicians, chartists are going to want to watch closely how much Salesforce.com deviates from the $151.00 or so level in the days and weeks ahead. There have been at least some growth concerns and serious pullbacks over the the last year, and Salesforce.com shares did briefly break under $125.00 last November and December (before screaming higher).

It’s also probably unfair to compare the chart pattern of Symantec prior to its announced acquisition of Veritas because of the complementary businesses that Salesforce has by owning Tableau Software. That said, the Symantec move broke what had been a stellar chart pattern as the company was struggling to maintain its prior growth.

Marc Benioff has been a rather nimble manager and has done incredibly well for Salesforce.com shareholders over time. He has also proven over and over the buying the stock on pullbacks has been a winning strategy for patient investors. It feels too soon for investors to overly panic about the Salesforce.com chart. That said, this initial share price reaction needs to be monitored closely — particularly as the organic business growth of Salesforce.com is apt to begin to mature in the coming years, when it may have to look for more growth via more acquisitions.

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