Salesforce buys Slack for $27.7bn

One of the five largest deals of the year, this is the culmination of a strong year for Slack.

Posted Wednesday, December 2nd 2020
Salesforce buys Slack for $27.7bn

In a major tech-sector acquisition, business software firm Salesforce has acquired work messaging platform Slack for nearly $28 billion.

The move is positioned to make Salesforce a more serious competitor to Microsoft in the software-as-a-service (SaaS) stakes. Salesforce entered this game early, in 1999, soon becoming the dominant customer relationship management (CRM) service provider in the digital world.

Microsoft has been playing catch-up, relying largely on name recognition to boost the uptake of its own SaaS suite, Office 365 (now known as Microsoft 365). Salesforce’s latest acquisition – by far the largest in its two-decade history – makes it more competitive with Microsoft: where Microsoft has Teams, Salesforce now has Slack, adding workplace messaging to its roster.

According to Wedbush Securities analyst Dan Ives, Salesforce’s strategy is “all about Microsoft”. “It’s just clear Microsoft is moving further and further away from Salesforce when it comes to the cloud wars,” he added.

Indeed, Microsoft has been muscling in on Salesforce’s CRM turf, launching its first CRM software package in 2003; its current offering, Dynamics 365, has over 40,000 customers. This pales in comparison to Salesforce’s 150,000 customers, but since Microsoft’s key strength is integration with its other products, it has increasingly been seen as a tempting option for businesses.

Salesforce has diversified into other areas, buying data analytics company Tableau Software last year for nearly $16 billion, and bidding for LinkedIn but ultimately losing to Microsoft, which paid over $26 billion for the professional networking giant.

Were it not for Microsoft Teams, Slack would likely have had a much higher market cap; before news of the acquisition, its stock price was barely higher than when the company floated last June. Since the pandemic, the company’s stock has risen significantly, from around $26 at the end of February to almost $41 by 25 November; but in the scheme of things, especially given the competition from Microsoft, being acquired for a solid premium is a win for the messaging platform company.

Whether anyone will acquire Zoom in the coming year remains to be seen. It is unlikely to be Microsoft, given its already similar video-meeting offering; Amazon throwing its hat into the ring does not seem far-fetched.

 

Legal advisor to Salesforce: Wachtell, Lipton, Rosen & Katz; Morrison & Foerster

Financial advisor to Salesforce: BofA Securities

Legal advisor to Slack: Latham & Watkins; Goodwin Procter

Financial advisor to Slack: Qatalyst Partners; Goldman Sachs

 

Arjun Sajip