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A few days ago, one of the largest acquisitions
in the history of software companies was announced.
Salesforce, the customer relations management company, just got Slack for itself for a good
$27.7 billion.
That's more than what Microsoft paid for LinkedIn in 2016. It's also more than what Facebook
paid for Whatsapp and Instagram, combined.
We already made a video about Slack's valuation back in July this year, when it was already
among the fastest-growing tech companies ever. The valuation back then was at around $20
billion.
Six months later, this deal confirms that it's worth $7.7 more billion now. But it all
comes with new questions.
Who brings what to the table in such a merger? Is it a win or a loss for Slack? Is it an
offensive or defensive move from Salesforce in a market where Microsoft seems to be the
ultimate boss?
Let's talk about it in this Company Forensics.
That's only a fair question to ask. Mostly,
if you go back to August this year, when Salesforce's
founder and CEO, Marc Benioff, stated that
it wasn't a good time for mergers and acquisitions.
He said that those were not Salesforce's plans at the moment.
Four months later, he just closed the biggest acquisition of Salesforce history, almost
doubling the previous biggest one, and in the midst of a pandemic. Tableau was the analytics
company they acquired for more than $15 billion only last year.
And suppose you go back a little longer, also about a year ago. Slack was getting listed
for public trading in the New York Stock Exchange, and its CEO, Stewart Butterfield, expressed
that he would prefer the company to stay independent
in its journey.
So, what has changed? In all fairness, the year 2020 has changed everything quite a bit.
That includes the markets, consumer habits, work dynamics, and pretty much everything
in-between.
That's what Mark Benioff has said about the companies merger. Yes, it may sound too romantic,
but it could also hold true if everything goes right.
Just in case, let's do a quick reminder of what Salesforce and Slack are and why they
are thriving in the current times of remote working.
In short, Salesforce is one of the largest software companies in the world. It started
as a cloud-based CRM, or customer relationship management, which was an operating system
mainly for salespeople.
But now, it also powers automated marketing, business analytics, customer success, and
back-office work. This fiscal year, Salesforce revenue has been reported at $17.1 billion,
growing 29% year over year. It has left behind industry pioneers like IBM and Oracle.
Under Benioff's leadership, Salesforce has been successfully executing a playbook of
expansion during the last decade. That is, mainly by merging several companies that fit
into the complete digital business environment Salesforce wants to build.
Some of the Salesforce acquisitions include Tableau, a business analytics company, Quip,
a collaboration tool for documents and files, and ExactTarget, a marketing automation system.
So, you can see how Salesforce is integrating different business solutions in one place.
Yet Slack is meant to be the cherry on top. Slack is the coolest, most effective, and
transparent way for companies to communicate internally and across all departments.
This is not an ad. We actually love Slack and we use it in Slidebean.
A significant transaction like this one inevitably generates mixed opinions and reactions in
the markets. The price of Salesforce stock
went down around 9% shortly after the announcement,
and it has been zig-zagging its way back up.
The acquisition caught some of Salesforce shareholders off guard, and short-term investors
may not be super excited about the move.
Analysts all have different takes on the matter. Some argue that Slack wasn't growing at the
pace everyone expected during the pandemic and was starting to get left behind by its
main competitor, Microsoft's Teams. So, they needed a big ally to compete.
Some argue that the prime Salesforce paid for Slack was too expensive, considering that
Slack hasn't even yet reached a billion dollars in revenue.
Others think that Salesforce got for itself one of the most valuable assets in the category
of the future of work, and the deal will look cheap in a few years from now since the potential
is immense.
Some think the two companies have what is needed to build a digital headquarters solution
for all businesses. But others believe Slack's integration in the Salesforce environment
is not so evident and maybe a distraction from its core business.
When asked about it, Benioff remembered a similar first reaction with previous acquisitions
that have proved successful over time.
For example, with the ExactTarget merger, he has said that the marketing company went
from making a few hundred million in 2013 to a couple of billions now. Similar to the
Tableau acquisition.
So, only time will tell if the Slack deal can be deemed a win or a loss, but there seems
to be consent that the merger looks promising for the long term.
Part of the discussion about this big deal
revolves around Slack's main competitor: Microsoft's
Teams. Both Slack and Teams serve a similar purpose, and Teams is the only other player
in this market that can pose a threat to Slack. And vice-versa.
But Salesforce also competes with Microsoft in the tech enterprise market, and the Teams
product was a big gap, as Salesforce had nothing like it for business communications.
So, in Salesforce’s road of expansion, it seems smart to join forces with Team's single
largest competitor.
Some even suggest that Salesforce's acquisition of Slack maybe some sort of retaliation after
the bid-war they held with Microsoft for LinkedIn. Allegedly, Salesforce was very interested
in that company, and the two made their bet, but finally, Microsoft's $26B offer won, back
in 2016.
CNBC analyst, Ari Levy, thinks that the nature of the relationship between Microsoft and
Salesforce changed after that. Now, the Slack acquisition deepens the competition between
them and that could end up being good for consumers.
The truth is, both companies are working towards the digital headquarters concept, bringing
cloud-based solutions to all the departments in a company, and to all kinds of companies.
The goal is a new
work operating system, accessible to everyone and from anywhere.
The future of digital work is being forged as we speak, and there is much at stake for
these giant companies that want to hoard the market. It won't take long to see more significant
transformations, as digital operations become the new normal for all businesses.
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Back to Salesforce and Slack can create the new digital workplace and give Microsoft a
run for its money? Share your thoughts below in the comments and we'll see you next week.