Salesforce buying Informatica has 'strategic merit' even as concerns arise: Citi

Salesforce (NYSE:CRM) potentially acquiring data management company Informatica (NYSE:INFA) has "strategic merit," Citi said, even if the investment firm is concerned about the valuation and execution of such a deal.

Salesforce shares fell 2.7% in premarket trading on Monday while Informatica dipped 1.5%.

"Though CRM management has emphasized Data Cloud success in recent Qs, our fieldwork suggests a less constructive view, with the product still relatively immature and CRM aggressively bundling and allocating revenue to Data Cloud in larger (Salesforce Enterprise License Agreements)," analysts led by Tyler Radke wrote in an investor note. "Indeed, data integration within customer’s CRM environments is complex with: CRM Clouds running on different code bases+data models given CRM’s acquisitive past; and significant data/information sprawl outside of Salesforce with customers often leveraging numerous other front-office SaaS vendors (Pipeline/forecasting mgmt, Lead management, Sales performance mgmt apps etc.). This has limited CRM’s access to higher fidelity/quality data for even traditional BI/analytics. As [generative AI] adoption rises, this challenge will only get harder."

"Data governance and data quality have risen in strategic importance with advance of GenAI as organizations modernize their data estates," the analysts wrote. Bringing Informatica's data management assets together with Salesforce's "significantly larger" organization could put Salesforce in a better position to capitalize off the data estate modernization discussion as it looks to supplement its data cloud offering.

If such a deal were to happen it would be positive for small and mid-cap data analytic companies, including Elastic (ESTC), Teradata (TDC), Confluent (CFLT) and MongoDB (MDB), the analysts added.