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Salesforce has confirmed that it is buying team collaboration platform Slack in a deal worth $27.7 billion. Salesforce said it plans to combine Slack with Salesforce Customer 360, a tool it introduced in 2018 that allows companies to connect Salesforce apps and Map teams and reconcile data sources across an organization, creating what they tout as an “operating system for the new way to work.”
Rumors first circulated last week that Salesforce, a cloud software giant best known for its customer relationship management (CRM) tools, was in talks to buy Slack. As the pandemic precipitated a boon for remote working tools, Slack has struggled to fully capitalize on the moment and fend off aggressive competition from the likes of Microsoft Teams.
A few days later, Salesforce confirmed that it would offer a combined cash and stock package worth about $27 Bn to acquire Slack, which would make it the 2 nd largest software company acquisition. Salesforce is buying workplace messaging app Slack for $27.7 billion, marking the largest acquisition in the San Francisco-based cloud-based company's history.
Slack went public on the New York Stock Exchange (NYSE) last June, opening trading at $38 per share with a valuation of $23 billion. But the company’s shares have been more or less in free fall in the 17 months since. In the quarter leading up to last week’s rumors, Slack’s stock was typically hovering between $25 and $32. With news of Salesforce’s interest, Slack’s share price shot up to an all-time high of over $44, giving it a market capitalization of $25 billion.
High bid
Salesforce in December agreed to buy Slack for $27.7 billion in cash and stock. Slack sells workplace collaboration software. The deal, expected to close in the second quarter of fiscal 2022.
Salesforce went in with a bid 10% above Slack’s most recent high valuation and more than 60% above Slack’s market cap before rumors of the impending deal first appeared last week. Salesforce said Slack shareholders, if they approve the deal, will receive $26.79 in cash and 0.0776 shares of Salesforce common stock for each Slack share. This represents an enterprise value of $27.7 billion, based on Salesforce’s closing price on November 30.
The transaction is expected to close in Q2 of Salesforce’s fiscal year 2022, which falls in the second half of 2021, after which Slack will become an operating unit inside Salesforce, led by current Slack CEO and cofounder Stewart Butterfield.
Salesforce and Slack have a long-established relationship, thanks to product integrations over several years aimed at making it easier for enterprises to share data between the two platforms. Salesforce already has an enterprise-focused social platform called Chatter, but the largely sales-focused tool hasn’t really taken off. In fact, Salesforce already offers integrations that allow users to share messages between Chatter and Slack, a possible indication that despite its clear market strength in certain areas, it still lags in others.
With the Slack acquisition, Salesforce now has a direct path to social collaboration across the enterprise, allowing it to create deeper integrations for its array of products. According to Salesforce, Slack will become the “new interface for Salesforce Customer 360” and will be “deeply integrated into every Salesforce cloud,” becoming the core conduit through which people “communicate, collaborate, and take action on customer information.”
Slack also recently launched Slack Connect, enabling up to 20 organizations to communicate in a single Slack channel, which could help Salesforce teams communicate with sales prospects and other external partners.
Slack’s slacking
Despite Slack’s popularity in the workforce, it has been at a major disadvantage compared to the deep-pocketed and expansive Microsoft, which has a huge ecosystem of products it can attach Teams to.
Microsoft launched its Teams platform back in 2016 and has enjoyed a healthy rivalry with Slack, which even took out a full-page ad in the New York Times giving Microsoft tips on how to succeed in the team communication sphere. But relations have soured, with Butterfield often calling Microsoft out over the way it bundles Teams with its broader Office suite, alleging that Microsoft misleads the public with its Teams’ daily active users (DAUs) data to make it seem more popular than Slack.
Indeed, Butterfield has long argued that Teams isn’t a true Slack competitor as Teams is used primarily for voice and video calls, similar to Zoom. He has also noted that “Microsoft benefits from the narrative” that Teams is a direct competitor to Slack.
Amplified by the COVID-19 crisis, which has driven companies to remote collaboration tools — particularly video — Teams has been on the front foot throughout 2020.
“Slack has some considerable differentiators still in the market, but the effects of the pandemic and the shift to remote work have made the competition with Microsoft even tougher, given Microsoft’s strength in video meetings, which we have all become so dependent on,” CCS Insight analyst Angela Ashenden said.
A few months back, Slack filed an antitrust complaint against Microsoft in the EU for bundling Teams with Office, asking the European Commission (EC) to take “swift action to ensure Microsoft cannot continue to illegally leverage its power from one market to another by bundling or tying products.”
The crux of the complaint is that while Slack is broadly available as a standalone service and application with various pricing tiers, Microsoft Teams comes as part of an Office 365 subscription, (though a free version of Teams is available too). Slack argues that Microsoft is using its market dominance with Office to force millions of people to install Teams, with no way of removing it or even knowing how much it costs.
It’s not clear whether Salesforce will take up the reins on this case once the Slack acquisition has cleared, but it’s hard to imagine Salesforce will want to pursue it any further.
Under the auspices of Salesforce, a $225 billion behemoth in the enterprise software space — spanning customer service, marketing, analytics, and more — Slack suddenly has a huge enterprise ecosystem through which it can be sold and integrated.
Former Salesforce product management VP Anshu Sharma, who became an investor before cofounding privacy API startup Skyflow, sees a huge benefit for the two companies.
“Combining Slack’s product advantage with Salesforce’s sales and marketing muscle creates a powerful combination,” he said. “Slack won the product war but was losing the sales and marketing battle to Microsoft and Google, who have a distribution advantage and deep pockets. With Marc Benioff on their side, Slack will overnight have 10 times more salespeople selling its product.”
Also worth highlighting is the geographic proximity of Salesforce and Slack, whose headquarters are a stone’s throw away from each other in the Transbay district of San Francisco. That wouldn’t have been a factor in any acquisition decision, but when it comes to integrating teams, talent, and technologies, it’s a bonus.
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SAN FRANCISCO — Enterprise software company Salesforce announced Tuesday it will purchase workplace chat tool Slack for nearly $28 billion, adding the popular collaboration app to its portfolio.
The two companies have entered into a definitive agreement for a sale in cash and stock. Slack CEO Stewart Butterfield will continue to lead Slack as an operating unit within Salesforce. Salesforce says it plans to combine Slack with its Salesforce Customer 360 software, which collects a company’s customer information in one place, and making Slack its new interface.
The sale is expected to close in mid-2021.
Slack has become indispensable for many businesses operating remotely during the coronavirus pandemic. A cash infusion from a bigger company could help Slack expand even more rapidly and better compete with rivals such as Microsoft Teams. Here’s a primer on what it could mean for workplace chatters, Slack competitors and the future of your favorite Slack features.
What is Slack?
If you already know what Slack is, chances are you know it a little too well. The workplace collaboration software is primarily used by companies as an alternative to email, though some non-workplace groups have adopted it for communication as well. Instead of a full email inbox, users get chat messages instantly on the Slack web app, the desktop app or their phone. There is no place or time Slack messages can’t find you, unless you remember to hit snooze.
What makes the app so appealing to companies are the details. There’s the ability to make public or private chat groups for teams and departments, or just directly message people. Most appealingly to Salesforce, it is designed to work with other popular workplace tools such as Google Docs or Trello, which makes it useful for more than just chat. And fun details such as GIFs, animated emoji and shortcuts for quizzes or making the ¯_(ツ)_/¯ emoticon make it an attractive place for employees to spend their virtual days.
Why is Slack so important now?
When companies started shifting their in-person, white-collar workforces to remote, they found themselves needing new ways to communicate. Slack, already popular with both a free and paid option, was suddenly a primary way people were collaborating on projects, conferring with bosses and co-workers, and even socializing. The phenomenon wasn’t as widely recognized as the Zoom boom, when that video-chatting app jumped from basic office uses to a necessity for families and friends, but it was also key.
“The events of this year have greatly accelerated the move by companies and governments to an all-digital world, where work happens wherever people are,” Salesforce said in its announcement of the deal. It says the merging of the companies’ software would create a “unified platform” for workers.
Bernstein analysts tout the “high virality” of Slack, as well as its “aesthetic user interface.”
Salesforce Is Said to Explore Acquisition of SlackSlack has said it has about 12 million daily active users, and Salesforce on Tuesday said Slack now has more than 142,000 paying customers. Its biggest competitor, Microsoft Teams, says it has 115 million daily active users. That number could be bolstered by the way Microsoft integrates Teams with its other Office products.
Slack Acquisition Salesforce
The announcement of the deal included that Slack added 12,000 new paying customers, and reported $234.5 million in total revenue for the quarter.
“Slack faces heavy competition from Microsoft’s Teams product,” Bernstein analysts note. They said the competition has become more prominent as usage metrics between the two services are compared — and Slack’s executives talk about competition on their quarterly earnings calls, too.
While a coronavirus vaccine is expected to be broadly available next year, many companies have already said they’re making some remote-work changes permanent. Twitter has said its employees can choose to continue to work remotely indefinitely, and Facebook has said up to half its workforce could be remote in 10 years. While much is still uncertain, Silicon Valley is betting that remote work, and the software that makes it possible, are here to stay.
Why Salesforce wants to buy it (and what is Salesforce again?)
Salesforce is known for a lot of things. Its core products are cloud-based programs for managing marketing and sales. But it’s also known for its vocal chief executive, Marc Benioff; its skyline-altering Salesforce tower in San Francisco; and popping up in the news as a rumored buyer for big-name consumer tech companies such as LinkedIn (now owned by Microsoft) and Twitter (never sold).
Slack is the largest acquisition in Salesforce’s 21-year history.
Purchasing Slack gives Salesforce a tool to fight one of its rivals, Microsoft, which has been pushing Teams heavily during the pandemic. Google has also been pushing its suite of collaboration and video tools, and Zoom has risen as a video-only option.
“Stewart and his team have built one of the most beloved platforms in enterprise software history, with an incredible ecosystem around it,” said Salesforce CEO Marc Benioff, who also welcomed Slack into the “Salesforce Ohana.” (Ohana is the Hawaiian word for family, and Benioff claims a strong connection to the island chain.)
Slack Stock After Salesforce Acquisition
The rise of Zoom babysitting
Bernstein analysts say they think Salesforce “has been interested in expanding into the collaboration space for many years (and made multiple prior attempts) and Slack provides a clear channel into the space.”
But UBS analysts warn in a note that the acquisition may not be a fit for Salesforce and could stretch it after some other purchases — such as its acquisition of data visualization software company Tableau for $15.3 billion in 2019 — take it further from its core business of customer relationship management.
“Salesforce has a solid acquisition track record and many investors might simply give Salesforce’s CEO the benefit of a doubt on a Slack acquisition,” the analysts write. Previous acquisitions have panned out better than expected. But factoring those in, plus Slack: “We’re less and less clear about the direction that Salesforce is heading.”
Why Slack would want to be bought
A buyer like Salesforce gives Slack an infusion of cash and resources to build out its software faster and help it take on Microsoft Teams. Slack, founded in 2009, has done an impressive job expanding on its own. But the pandemic has put more of a focus on remote work, and other, larger companies are suddenly more than eager for a piece of the fast-growing industry that makes a world without offices possible. Salesforce has a good track record of buying companies and fueling their growth, analysts say.
Microsoft is accused of corporate bullying, after years of avoiding antitrust allegationsStifel analysts dub Slack “wildly popular” but note that it’s also unprofitable.
“The tie-up between Salesforce and Slack would position well for the ‘democratization’ of enterprise software,” Stifel analysts add.
What will the takeover mean for me, a Slack user?
Will Salesforce take away your favorite Slackmoji (the dancing otter)? Will it be renamed Salesforce Chat? There are always questions about what will happen to a product when it’s purchased by a larger company.
Salesforce Purchasing Slack
Salesforce is no stranger to snatching up existing brands, but few have been as well known outside its industry as Slack. The chat company’s brand loyalty could influence how much Salesforce decides to tweak, and how much it leaves alone. Salesforce has already announced plans to combine Slack with its existing software, but that could mean more changes for Salesforce users than Slack users in the short term.
Slack Salesforce Acquisition Price
Scaring off longtime users by replacing Slack’s rainbow logo with Earnie the badger, one of Salesforce’s characters, is probably not on the company’s to-do list.