Salesforce's Braze buy leaves about $0.6 billion after three cash deals

Salesforce will pay $47.50 a share for Braze, a 58% premium. Braze, Contentful and Fin total $10.8 billion against $11.4 billion of cash and securities on 31 July.

Salesforce said on Tuesday that it will buy Braze, a customer messaging software company, for $47.50 a share in cash. Salesforce puts the deal at about $5.66 billion in enterprise value.

Enterprise value is the equity price plus debt, minus cash. It therefore nets out the cash Braze already holds. Shareholders receive $47.50 in cash. Braze shares rose about 51% to about $45.50 by midday in New York, 4.2% below the offer.

The deal shows how Salesforce now spends its money. In March it sold $25.0 billion of bonds to fund an accelerated share repurchase, which cut shareholders' equity by $27.4 billion. Since May it has agreed three cash acquisitions, with Braze the largest. Borrowed money funded the spring buyback; the remaining cash is funding acquisitions in the autumn.

The price is steep against Braze's own numbers. The offer is 58% above Monday's close and 100% above the $23.73 close of 9 September, the day after Braze's second quarter results sent the shares down.

Those results showed revenue up 26.2% to $227.2 million. They also showed an operating loss of $18.1 million under US accounting rules. Share based pay came to $35.7 million.

Measured against guidance, the multiples are high. Braze guides for revenue of about $911 million this year, so the enterprise value is 6.2 times sales. It also guides for adjusted operating income of about $76 million, so the enterprise value is 74 times that profit.

The business underneath is real. Braze reported adjusted operating income of $22.0 million and free cash flow of $21.7 million for the quarter. Net retention, the year on year spend of existing customers, was 110%.

Salesforce's investor slides, filed as an exhibit, say the deal adds mobile and data engineering talent and extends its marketing products. They also promise "near term profitability dilution" and call cash a "non dilutive form of consideration". Salesforce is paying for growth and engineering rather than current earnings.

It is also paying for a company whose adjusted profit leaves share based pay out of the count. The quarter's $35.7 million annualises to roughly $143 million, nearly twice the adjusted operating profit Braze guides for.

Salesforce's July quarterly filing reports cash, cash equivalents and marketable securities of $11.4 billion. It describes Contentful at about $1.5 billion in cash, net of shares Salesforce already owned. It describes Fin at about $3.6 billion.

Both of those deals have closed. Contentful closed on 1 September and Fin on 10 September. Add Braze at enterprise value, which already nets out its own $413.9 million of cash, and the three come to $10.8 billion. That is 94% of the July pile, leaving about $0.6 billion.

That $0.6 billion is a ceiling, not a spare pot. Salesforce has also signed for Listen Labs, announced on 29 September, and Loops, announced on 12 October. It has not priced either, and the filing predates both. Loops is due to close in early November. Listen Labs is due in the quarter ending 31 January 2027. Both will draw on the same cash.

Operating cash flow adds to the pile. It was $7.97 billion in the first half but only $1.27 billion in the second quarter. A $5.0 billion revolving credit line stood undrawn on 31 July.

Liquidity is not in doubt, but the sequence is. The quarterly filing shows that the $6.0 billion term loan taken in March refinanced the $4.0 billion and $2.0 billion credit lines used for Informatica. That loan therefore added no cash. Only the $25.0 billion of notes funded the buyback.

The buyback's first delivery was 114 million shares. The equity statement records $22.8 billion of treasury stock, meaning repurchased shares, for that delivery. The rest of the reduction sits against paid in capital while the repurchase completes. The bonds paid for the buyback; the acquisitions are paid from the cash left over.

The contract shows who carries the regulatory risk. Under the merger agreement, Salesforce owes Braze $300 million if the deal ends at the outside date or on a final regulatory prohibition. Braze owes Salesforce $191.4 million if its holders vote no, its board changes its recommendation or it accepts a superior proposal.

That is 5.3% of enterprise value for Salesforce against 3.4% for the target. The buyer carries more of the cost if regulators block the deal.

The deal can stay open for a long time. The outside date, the last day either side can walk away, is one year from signing, which is 19 October 2027. Two extensions of 90 days each are possible, so the deal can stay open for about 18 months.

Salesforce's fiscal 2028 runs from 1 February 2027 to 31 January 2028, and the press release expects closing within it. Braze's holders must still vote. Closing needs a majority of those outstanding, since no Class B shares exist.

At about $45.50 the shares sit close to the offer, so the market prices in completion. By midday Klaviyo was up about 10% and HubSpot about 5%. Investors appeared to read the deal as a rerating of engagement software, not just a premium for one target.

Braze's chief executive says the company will "continue building as Braze". How Salesforce prices and packages it beside Marketing Cloud, Data 360 and Agentforce remains open.

Salesforce has not guided fiscal 2028. Its balance sheet for the quarter ending 31 October will be filed after that date. It will be the first to show how much of the $11.4 billion survives Contentful, Fin and the first of the smaller deals. The Loops closing due in early November will test whether the $0.6 billion is real.