Salesforce goes back to the M&A well to fortify a weaker business. Why it's a smart move

Salesforce is flexing its financial muscle to bolster a struggling business — and demonstrating to Wall Street that it has learned from past mistakes in the process. The enterprise software giant plans to acquire marketing technology platform Braze in a bid to strengthen its own marketing business, which has been one of its weaker application verticals in recent quarters. Customers use Salesforce's marketing software to run and analyze advertising campaigns across a variety of channels including the internet, email and text messages. One of Braze's biggest differentiators is its real-time capabilities to make ads more personalized, especially on smartphones, helping fill a gap in what Salesforce currently offers customers. Salesforce on Tuesday agreed to pay $47.50 a share in cash, valuing Braze at $5.66 billion including debt. The decision to buy Braze in cash — rather than issue new shares to pay for the deal — is notable because it avoids watering down the stakes of existing shareholders. Salesforce has faced criticism in the past for making dilutive and expensive deals, such as the purchase of Slack five years ago. That acquisition has started to look better lately, and CEO Marc Benioff has been quick to point out how integral it is to the company's relevance in the artificial intelligence era. "Salesforce is using its powerful balance sheet to be able to buy up other companies that are doing very well," Jim Cramer said in response to the Braze deal. Shares of Braze soared 52% on Tuesday in reaction to the acquisition announcement, getting to within a few bucks of the takeover price. Shares aren't doing much Wednesday. For its part, Salesforce shares were basically unchanged Tuesday and are slightly lower in Wednesday's session. The stock is up more than 60% from its 52-week closing low on June 22 after a bruising start to the year on AI disruption concerns. BRZE YTD mountain Braze's year-to-date stock performance. Salesforce has made a series of acquisitions in recent months to beef up its AI capabilities. The company completed its takeover of AI customer service platform Fin last month, shortly before the start its influential Dreamforce conference, which showcased its plan to thrive in an AI-first world. The backdrop looked a whole lot different in June, when the all-cash, $3.6 billion acquisition of Fin was first announced. Back then, Salesforce was caught up in the middle of the "SaaSpocalypse," or the idea that AI would disrupt software companies' seat-based business models and enable their customers to build replacement applications in-house. At that time, buying Fin did little to calm Wall Street's concerns about AI disruption. It also rekindled the debate around Salesforce's track record of mergers and acquisitions. The same can be said for Tuesday's Braze deal. Over the years, investors and analysts alike have accused Salesforce of relying too heavily on acquisitions to fuel growth, often at the expense of current shareholders. Salesforce's $15.7 billion acquisition of Tableau in 2019 and its $27.7 billion purchase of Slack in 2021 are prime examples. Tableau was an all-stock transaction, while Slack was a combination of both cash and stock. Frustrations came to a head beginning in the second half of 2022 when activist investors, including Jeff Smith's Starboard Value, began pushing Salesforce to reconsider its spending habits, improve profitability and prioritize shareholder returns. That's what makes Salesforce's decision to finance the Braze and Fin acquisitions with cash so noteworthy. It's a sign that the company has listened. In using cash to avoid dilution, Salesforce is also not counteracting its aggressive stock buyback program, which helps reduce the amount of shares outstanding and, all else equal, supports earnings-per-share growth. Salesforce stepped up its repurchase activity earlier this year as its stock price tumbled amid the "SaaSpocalypse." The purchase price of Braze is "roughly four months of our fiscal year 2027 annual free cash flow," Salesforce CFO Robin Washington said on an investor call Tuesday to discuss the deal. "We believe that it is an attractive price for an asset of this quality and scale." Braze — whose roughly 2,770 customers include Instacart, Dairy Queen and Venmo — should make Salesforce's marketing offerings more competitive. In plain English, Braze's marketing platform can observe customer behaviors and then personalize interactions and experiences based on what the consumer wants. "AI is changing the way people work ... but it's also changing what people expect from their favorite brands," said Patrick Stokes, president of applications and marketing at Salesforce, during Tuesday's M & A call. "People expect brands to know them; they expect them to respond to what they're doing in the moment and reach them wherever they are. ... To do that marketers need agentic solutions that can understand their customers, make decisions and, most importantly, act with speed in real time." This is where Braze thrives, Stokes said, and adding that to what Salesforce currently offers on marketing — coupled with its trove of other customer data — represents a powerful combination. Braze is projected to do $912 million in revenue in the 12 months ending in January, up 24% year over year, with adjusted earnings per share of 64 cents, implying 69% annual growth, according to FactSet. Finance chief Washington said Salesforce's scale can "widen Braze's reach to more customers around the world, driving meaningful top-line growth over time." Jim is not the only one in the Wall Street community who believes that owning Braze makes Salesforce's future even brighter. Analysts at KeyBanc called the pending acquisition "a step in the right direction." In a note to clients Tuesday, they wrote, "Braze adds an event-driven engagement platform that would strengthen Marketing Cloud's ability to personalize interactions across mobile, web, and messaging channels as customer behavior changes." Analysts at Stifel, who cover both Braze and Salesforce, said this is a "win-win" combination. "In our time covering Braze, lack of innovation at incumbent marketing clouds, particularly Salesforce's, was a core tailwind in our Buy thesis, and Salesforce is effectively buying the share-taker," they wrote. Salesforce expects the acquisition to close in its fiscal 2028, which begins in February. The company said there's been no change to its fiscal 2027. It also said its long-term financial targets are unchanged "at this time." Some acquisitions take longer to payoff than others. That's certainly been the case with Slack, which, Jim noted, has accelerated in recent quarters and become an important prong to Salesforce's broader AI strategy. The idea is letting customers access all the valuable data stored within Salesforce's applications without necessarily needing to log into the traditional application like in years past. As a workplace messaging app, workers spend a lot of their day in Slack to begin with, and Salesforce is leaning into that with more integrations and AI functionality. "Slack is everywhere. I think Slack has become a very common product and that's because of [CEO Marc Benioff]," he added. Along the same lines as Slack, Salesforce in August announced a partnership with Anthropic to integrate more closely with its Claude chatbot. Benioff was on CNBC alongside Anthropic CEO Dario Amodei to talk about the partnership, which was announced the same day that Salesforce reported better-than-expected fiscal second-quarter earnings. It was a seminal day in Benioff's quest to put the AI disruption fears to bed. That combination of good news prompted Club to raise its price target on Salesforce to $250 per share. Wall Street is also coming around, with Bank of America double upgrading Salesforce to buy from sell last week. The firm acknowledged that the risks of AI disruption to Salesforce were overstated, arguing that Salesforce has a credible AI strategy and could benefit from increased enterprise spending on the technology. The firm also raised its price target to $285 per share from $160. (Jim Cramer's Charitable Trust is long CRM. See here for a full list of the stocks.) 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