Salesforce takes a huge bet on remote working as investors seem wary of the merger which is set to compete against Microsoft.
Yesterday, enterprise software pioneer Salesforce agreed to buy Slack (NYSE: WORK) for over $27 billion, marking the biggest acquisition in its 21-year history. Describing the deal as a ‘match made in heaven’, CEO Marc Benioff said the purchase enables Salesforce to offer a unified platform for business connections to rival Microsoft Teams. The purchase values Slack at over 24 times its estimated revenue for 2021.
News of the purchase, which came as no surprise to investors considering discussions around the deal have been circulating over the last week, came following Salesforce’s third-quarter earnings report last night. The report showed Salesforce’s slowing revenue and a weak forecast. The company’s annualized revenue topped $20 billion in the second quarter, up 29% year-over-year. However, the forecast for the full year of 21-22% would make it Salesforce’s slowest rate of expansion since 2010.
Slack pushed its earnings report forward a week in response to the acquisition. The workplace chat company smashed estimates on non-adjusted earnings per share (EPS) of $0.01 and revenue of $234.5 million, an increase of 39% increase year-over-year.
According to a statement, Salesforce will be buying the chat software developer through a combination of cash and stock — $26.79 a share and 0.0776 shares of Salesforce. That totals about $45.86 a share. Prior to talks about the deal last week, which sent Slack shares up 38%, the stock was trading at just under $30. Overall, Slack shares are up 95% in the year to date.
Slack’s role in Salesforce’s cloud software domination plan
Slack is the latest acquisition in Benioff’s multi-year buying spree. In 2019, the company bought Tableau for $15.3 billion for its data visualization services. The year prior, Salesforce acquired MuleSoft, whose backend services connect data stored in separate places, for $6.5 billion. The deals have made Salesforce into one of the most valuable software companies in the world, passing out industry tech giants Oracle, IBM, Intel, and Cisco.
Slack will also help the company bolster its portfolio of enterprise applications and fill out its software suites. Salesforce is essentially looking for new areas of growth, so the San Francisco-based company could benefit in many ways from Slack’s 130,000 paid clients, the opportunity to cross-sell products to each company’s clients being an obvious one. Slack could also unlock growth for Salesforce by introducing it to the many start-up companies that use the chat platform, which would be a new revenue stream for Salesforce who mainly host mega-corporations.
Slack provides much more than just a chat service; its software allows companies to embed workflows easily. This is something that Salesforce can do now, but with Slack, its clients will be able to work both inside and outside of Salesforce’s ecosystem to build workflows in a much smoother way.
During the company’s earnings call, Benioff stated that he believes the acquisition will help Slack reach its next stage of revenue growth. Benioff explained “they’re basically entering from the $1 billion to $2 billion phase, which I know extremely well, and this is a moment where we can offer a lot of value. We’ve been there. We’ve lived that life.”
Microsoft and Salesforce have been rivals for years now and this deal is set to further intensify things between the two. Microsoft’s Teams chat and video features have also been a hurdle to Slack’s growth this year. Salesforce, which got its start by developing cloud software tools for sales representatives, is the biggest player in customer relationship management software, whereas Microsoft dominates in the productivity software sector as its Office suite controls the market alongside Google. Salesforce has been unable to use its acquisition of Quip, a collaborative productivity tool used by groups to edit documents together, to help with this. The merger will leave it up to Microsoft and Salesforce to battle it out to become the leading provider of cloud software for corporations.
What does the Salesforce deal mean for Slack?
The acquisition will give Slack the resources and expertise of a $225 billion company, helping it reach the $2 billion phase of growth. Furthermore, the merger will allow Salesforce to build out its collaboration products.
As software plays a more prominent role in businesses performance, the two companies will be able to provide a higher degree of organisation and alignment to the way employees communicate with each other. Slack and Salesforce together will be able to shape the future of business software by transforming the way we work in an all-digital, remote working world.
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