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, Mark 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. No matter if it's a small team of five people or a corporation with thousands of collaborators, it just works.
Slack has refreshed team communications, turning what used to be a plethora of mixed emails, into a centralized hub. That's a place where teams can effectively communicate, with full visibility, and integrating other work-related tools.
Slack has nailed the psychology of habit-formation in the workplace and knows how to hook users by making regular work behaviors easier, more efficient, and even fun.
Here at Slidebean, we love Slack. Yes, we are hooked. It has proved to be a fundamental tool in the current times, keeping things as organized and optimized as possible during full remote work.
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 vise-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.
So, do you think 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 tune in for the next one.