Salesforce is interested in buying Slack, the popular workplace chat company, sent shares of the smaller firm sharply higher today.
An agreement could be announced as early as next week
Slack has had a bad run since its IPO last year, six years after its inception in 2013. But things could get better if the company is actually acquired by Salesforce, as its share price jumped nearly 38 percent at the close on Wednesday after the Wall Street Journal (WSJ) announced that the company was approached by Salesforce for a buyout. However, investors appeared unimpressed by the acquisition, as Salesforce's stock fell about 3.5 percent following the announcement and 5 percent at closing.
Salesforce could save Slack from aggressive competition from Microsoft Teams
Slack, owned by Slack Technologies Limited, is a corporate communication and collaboration service that enables individual messaging, as well as group discussions and more structured rooms where users can join or be invited to chat. It provides many features that have made it popular with several free customers and has over three million paying customers. The Slack service comes in several versions: the free version allows users to search for a limited number of messages.
The paid versions, which are priced per user, offer unlimited search, group calls and some security benefits. Finally, large companies, government departments or other organizations can opt for a dedicated enterprise version, which is designed to group several Slack workspaces together. However, with the introduction of Teams by Microsoft in 2017, Slack has come under fire from Microsoft in recent quarters as the Redmond-based software giant has poured resources into its competing Teams service.
Teams has been challenging Slack's chat tool and Zoom's video features and has seen a huge growth in its customer base in recent quarters. Last July, Slack even filed a complaint against Microsoft in Brussels for anti-competitive practices, accusing Microsoft of illegally linking its Teams product to its Office suite to eliminate its competitors. Prior to that, in May, Slack CEO Stewart Butterfield accused Microsoft of unhealthy practices: "Microsoft may have an unhealthy preoccupation with trying to kill us, and Teams is the vehicle to do so.
Thus, analysts believe that finding Slack a head office among the largest technology players could ensure that Microsoft does not crush Slack under most of its enterprise software sales. Similarly, Salesforce, sometimes an ally of Microsoft, wouldn't mind adding Slack, which has been growing faster lately, to its own growing software revenues. At this point, it comes down to price. Slack's investors won't want to sell below a good premium to the price per share before the IPO, which now seems rather outdated.
The deal would not only benefit Slack, which seems to have no more cards
to play in the face of Microsoft Teams' aggressiveness, it should also benefit
the SaaS software giant, Salesforce. "This would be a shift in
direction for Benioff & Co. that could strengthen its collaboration engine
and product footprint as cloud computing spending increases across the
enterprise," said Dan Ives of Wedbush Securities, a privately held
financial services and investment firm based in Los Angeles, California, to
CNBC, referring to Salesforce CEO Marc Benioff.
What benefits could Salesforce gain from the acquisition of Slack?
Salesforce, the global leader in customer relationship management tools, has embarked on a series of acquisitions, taking advantage of the increase in market capitalization in recent years to buy fast-growing companies. It acquired MuleSoft, a San Francisco-based software company that provides integration software to connect applications, data and devices, for $6.5 billion in 2018. This was the largest deal the company had ever made at the time to help connect applications in the cloud.
The following year, it spent more than double that amount, $15.3 billion, to acquire Tableau Software, a data visualization company. For this time, it is not yet known how much the deal will be worth. Slack's market capitalization has increased to over $20 billion following the initial WSJ report. What is certain, however, is that Slack's acquisition will exceed, perhaps significantly, that of Tableau Software and would become Salesforce's largest acquisition to date if the companies go through with it.
According to experts, it's not immediately clear why Salesforce, a huge software company with a strong position in the CRM market and aspiring to become an even bigger player in the platform, would want to buy Slack, although there are possible advantages. In particular, there is the possibility of selling both companies' products to each other's customers, which could allow both parties to grow. Slack has a large market share in fast-growing startups, for example, while Salesforce's products can be found in a multitude of mega-bodies.
In addition, while Salesforce acquired Quip for $750 million in 2016, giving it a suite of cloud computing and groupware productivity tools and software, Salesforce Chatter has been the only social tool in the company's arsenal. Buying Slack would give the CRM giant a solid foundation for discussion and probably a lot of synergy between customers and tools. That said, Slack has not always been just a chat client, its use cases can be extended.
For example, Slack allows companies to integrate workflows, among other things, and that would fit well with the Salesforce family of products, which covers sales, service, marketing, and more. In addition, it would also allow companies to work both inside and outside the Salesforce ecosystem, creating seamless, integrated workflows. While it's theoretically possible to do this now, if the two were combined, the integrations would certainly be much tighter.
In addition, Holger Mueller, an analyst at Constellation Research, says it would give Salesforce a hard-to-find revenue stream, which it is constantly seeking to maintain its revenue engine. "Slack could be a good candidate to strengthen its platform, but more importantly to increase the utilization and "stickiness" of Salesforce products, because collaboration is not only important for CRM, but also for the vendor's growing "work.com" platform," says Holger Mueller. He added that it would be a way to compete with Microsoft, which has become both friend and foe.
The benefits seem obvious, but investors seem skeptical
Experts agree that Salesforce could overshadow Teams if it were to buy Slack. In fact, Microsoft is already competing with Salesforce for customer tracking software. In 2016, TechCrunch reported that Microsoft is considering buying Slack for up to $8 billion, but no agreement has been reached. Later in the year, Microsoft launched the Teams communications application and, since 2017, has engaged in unprecedented competition with Slack.
"Our main competitor is currently Microsoft Corporation," said Slack as it sought to become a public company in 2019. Microsoft has a large customer base that it has been able to convert to Teams, and Salesforce could give Slack a similar advantage. Slack last reported in October 2019 that it had more than 12 million active users per day. In October, Microsoft announced that Teams had 115 million active users per day, which is a record when you consider that Teams is only 3 years old.
Salesforce and Slack spokespeople were not immediately available to comment on a possible takeover of Slack. However, yesterday, the shares of both companies fluctuated, positively for one and negatively for the other. Since the WSJ article, Slack's stock climbed just under 25 percent on Wednesday afternoon and 38 percent at closing. At around 6 p.m. yesterday, Slack was worth $36.95 per share, valuing it at approximately $20.8 billion.
The famous old unicorn was worth no more than $15.10 per share last year and is now worth $40.07. In contrast, Salesforce shares were trading lower in the media yesterday afternoon, falling about 3.5 percent. According to experts, investors in the San Francisco-based SaaS pioneer weren't impressed by the idea of the merger with Slack, or worried about the price that would be required for the IPO in 2019. Finally, according to a CNBC report, Microsoft shares also fell slightly yesterday.