Salesforce acquires Slack for $27.7 billion

Salesforce has confirmed that it’s 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.

Rumors first circulated last week that Salesforce, a San Francisco-based cloud software giant best known for its customer relationship management (CRM) tools, was in talks to buy Slack. In what has been a boon year for remote working tools due to the COVID-19 pandemic, Slack has struggled to fully capitalize on the rapid transition and fend off aggressive competition from the likes of Microsoft Teams.

Slack went public on the New York Stock Exchange (NYSE) last June, opening trading at $ 38 with a valuation of $ 23 billion. The company’s shares have been more or less in freefall in the 17 months since. And in the quarter leading up to last week’s rumors, Slack’s stock generally hovered 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 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. The company 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, with product integrations going back several years to make it easier for enterprises to share data between the two platforms. Salesforce already has an enterprise-focused social platform called Chatter, but that is more of a sales-focused tool and hasn’t really taken off. In fact, Salesforce already offers integrations that allow users to share messages between Chatter and Slack, an indication — perhaps — 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 prove useful for Salesforce teams in terms of communicating 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 — Slack even took out a full-page ad in the New York Times telling Microsoft 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 has 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.”

At the crux of the complaint is the idea 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.

Anshu Sharma, a former VP of product management at Salesforce who became an investor before cofounding privacy API startups Skyflow, sees a huge benefit for two companies joining together.

“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 geographical 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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Entrepreneur – VentureBeat

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