Is Salesforce buying Slack?

The giant cloud software company is working on a deal to acquire the messaging company. According to people familiar with the matter, this would be one of the biggest software transaction ever.

What is Slack?

First released in 2013, Slack is a communication platform developed by the company Slack Technologies. Slack is an incredible way for teams to communicate, offering many messaging features such as chatrooms for specific topics, private and public groups, direct messaging, and ways to comment directly on specific messages. Shared content such as messages and files are easily retrievable through a dedicated search function. For the curious reader, here are some of the functionalities you will find on Slack:

  • The Team function - Slack allows team and groups to join what they call a "workspace" via a specific URL. Although it was initially designed for the workspace, the tool was also adopted by different groups, sometimes as a substitute to social media.
  • Instant messaging - The channels are divided between private and public channels where everyone can see what is happening. Colleagues can exchange without having to revert to SMS or email. Groups can easily be made for specific topics and subgroups can be added when necessary. Employees can also send private messages to each other. You can send a private message to up to 9 people, and the channel can be converted into a private group if deemed necessary.
  • Integration - One other strong point of Slack is the ability to integrate third party services effortlessly, such as Google Drive, Zendesk, Dropbox and many more.
  • API - the software also provides a built-in API that permits the creation of applications and automated processes, such as automatic messages and notifications necessary for certain tasks and projects. The automatic generation of tickets is also an option.

The program is of course available on both iOS and Android as well as on any web browser.

Slack reported that their average user was spending around 10 hours per day connected to the platform, with an active use of around 100 minutes. This gives an idea of the success it can have once implemented in companies.

 

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Salesforce buying companies to beat Microsoft

Salesforce was one of the big winners of the pandemic, due to the incredible amounts of money spent in cloud software. Indeed, a strong digitisation due to employees working from home was the motor of growth they needed. They are now looking for new acquisitions to stay competitive facing the big boss of cloud services: Microsoft.

The acquisition of Slack would makes sense to stay competitive and offer an alternative to Microsoft's Teams, a messaging app offering similar services. Salesforce has the whole backend figured out with strong cloud computing services and a strong CRM.  Slack may be one of the final golden pieces to complete their front-end offering. Not only could they cross sell their products to their respective user bases – with Slack being more established in start-up and fast-growing companies, and Salesforce having a strong presence in larger corporations – , a combination of the functionalities of the two software could be a serious competitor to Microsoft's Teams. 

Salesforce is not at its first acquisition, having acquired Tableau in 2019 for about $16 billion and MuleSoft a year earlier for $6.5 billion. Despite their willingness to grow and expand, Marc Benioff, founder, and CEO of Salesforce, indicated that the high valuation of some software companies made it difficult to strike good deals. “For a company like Salesforce we don’t really see an M&A environment,” he said on a call with analysts.

The only thing that the company fears now is Microsoft's Teams, which acquired many, many users during the pandemic: from 20 million users a year ago to 115 million today.

Such a growth along with the implementation of CRM capabilities, is making Teams a dangerous competitor to Salesforce as there is the risk that they could outflank them.

After having failed to acquire LinkedIn and Twitter, Salesforce renounced to enter in more acquisitions for the moment, as they believe that software companies are overvalued at this time.

However, Slack might be the exception to this new rule.

 

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Slack's underperformance vs. Salesforce outperformance

When Salesforce was extremely good at capturing market shares, Slack stayed behind and did not really thrive in the past few months. Before the news of the potential acquisition by Salesforce, Slack was trading 23% below their closing price on the first day of trading last year, where as the cloud software sector surged 78% this year.

Salesforce was already considering the acquisition of Slack last year when it went public on Wall Street, but the messaging company was facing different business challenges making their shares a little pricier than they ought to be, which encouraged Salesforce to hold and wait for a better moment. Since then, Salesforce's shares surged 57%, making available a much stronger currency for an all-in buy. Simultaneously, Slack's shares dropped nearly a quarter, before getting back up when the potential deal was announced. The rise of Salesforce shares vs. the diminution in value of Slack's can potentially make it a good acquisition, despite other software companies being perceived as too expensive for the moment.

Slack's growth was not as impressive as Teams. We do not have information about its user count, but the company claims to have 130'000 paying customers and increase of 30% compared to last year.

It is worth noting that shares of Microsoft dropped slightly as well following the news.

 

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Screenshot 2020-11-27 112942Salesforce and Slack stocks (source: Investing.com)

 

The biggest software deal in history

When they announced the potential deal, Slack's shares rose 32% on Wednesday, while Salesforce's stocks dropped 4%. We're not entirely sure about the size of the deal, but people familiar with the matter talked about a $20 billion deal putting it on the podium software acquisitions in history, surpassing Facebook's acquisition of WhatsApp for $19 billion in 2014 for the third place. The first to spots are still for IBM's $34 billion acquisition of Red Hat in 2019 and Microsoft's $27 billion acquisition of LinkedIn.

The price remains the last issue to solve for the deal to take place. Will Salesforce succeed to strike an appropriate deal?

 

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Sources:

Salesforce in talks to buy Slack in huge cloud software deal, in the Financial Times

Salesforce talks to buy Slack foreshadow showdown with Microsoft, in the Financial Times

Salesforce held talks to buy Slack, in a deal that could be one of the biggest ever for the industry, in NBC News

Salesforce Is in Advanced Talks to Buy Slack Technologies, in the Wall Street Journal

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