Google could acquire Salesforce and spin out its cloud business to catch up to Amazon and Microsoft, analyst predicts

• RBC Capital Markets says that Google could buy Salesforce, with a projected purchase price of as high as $250 billion - a premium of almost 70% to its market cap at the time of writing.
• On a separate, but related, note, RBC believes that Google could spin out its cloud business into a standalone company valued at as much as $226 billion.
• Acquiring Salesforce would allow Google to "instantly jump" to the No. 2 spot in the cloud market behind Amazon, displacing Microsoft, RBC projects.
• This isn't the first time analysts have predicted major cloud acquisitions for Google. Just last week, Wedbush Securities analyst Dan Ives told Business Insider he expects Kurian will lead Google to major acquisitions and identified four potential targets.
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Analysts at RBC Capital Markets made some bold predictions for how Google could catch up to Amazon Web Services and Microsoft in the cloud-computing businesses. But Wall Street should take note: RBC's projections would require Google to spend big.

The equity research firm in its 2020 software outlook report said it expects Google could acquire Salesforce to leapfrog Microsoft in the cloud market, in a deal that it projects to be valued at as much as $250 billion - a premium of some 70% to its market cap at the time of writing. RBC expects that Google would have to leverage debt to make it work.

RBC also predicts in the report Google could acquire software company Nutanix to bolster its efforts in the hybrid cloud and pay as much as $10.1 billion, well over the company's current market cap of about $6.3 billion.

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Separately, but on a related note, RBC projects that Google could spin out its entire cloud business into a separate company with a valuation of as much as $226 billion.

The predictions come just as Goldman Sachs reported a slight decline in Google cloud usage, according to a survey of 100 technology executives from Global 2000 companies.

Google is by far the No. 3 cloud player. Gartner most recently estimated AWS had a 47.8% market share in 2018, compared to Microsoft's 15.5% and Google's 4%. But RBC analysts see potential for the business after Google earlier this year hired Thomas Kurian as the new CEO of Google Cloud.

"Bottom line is that Google Cloud Platform is a clear No. 3 player in the public cloud, significantly trailing both AWS and Azure by annualized revenue market share," the note said. "That said...Google has been making an aggressive push both with respect to talent acquisition, technology partnerships and M&A to sharpen its strategic enterprise value proposition."

Acquiring Salesforce

Google could acquire Salesforce and reach its goal to become the No. 2 cloud player by 2023, RBC predicts.

According to a source who spoke to Business Insider in August, Kurian told employees Google Cloud has a five-year goal to become "at least the No. 2 cloud."

"We don't see a viable organic way to get there," the RBC note said. However, acquiring Salesforce would allow Google to "instantly jump" to the No. 2 spot behind Amazon, displacing Microsoft, RBC projects.

Observers have speculated since he took the job that Kurian could be looking to make mega-deals to help Google leapfrog closer to cloud supremacy.

Just last week, Wedbush Securities analyst Dan Ives told Business Insider he expects Kurian will lead Google to major acquisitions, including potential deals to buy publicly-traded entities like cloud-based finance and human resource firm Workday (valued at some $37 billion at the time of writing), cybersecurity provider Palo Alto Networks ($23 billion), cloud software company ServiceNow ($53 billion) and data-analytics company Splunk ($23 billion).

Spinning out Google Cloud Platform

RBC also predicts Google will spin out its cloud business into what would be the third-most valuable enterprise technology company behind Microsoft and Amazon.

RBC says a spinout is possible because Google early this year hired Kurian and now "GCP has a clear leader and proven senior executive with Wall Street familiarity steering the proverbial ship," citing Kurian's 20-year tenure at Oracle before coming to the search giant.

The firm also said a separate is more likely due to increasing antitrust scrutiny of Google and the recent changing of the guard at Alphabet, in which Larry Page stepped down as Alphabet CEO and Google CEO Sundar Pichai took over, suggesting "a willingness for the company to optimize operationally across business units."

Amazon Web Services often gets the spotlight when it comes to discussion about potential cloud spinouts, but RBC expects a Google Cloud Platform spinout is more likely. AWS on Tuesday confirmed to Business Insider it has replaced its chief financial officer, a role that would be important in the event of a spinout.