After nearly a week of speculation, Salesforce confirmed its intent to acquire popular workforce chat platform Slack in a deal valued at $27.7 billion on Tuesday, marking the enterprise cloud giant’s largest-ever acquisition and positioning it to compete more forcefully with the nation’s second-largest tech firm by market capitalization, Microsoft.
In an announcement accompanying the firm’s third-quarter earnings release, Salesforce said it’ll offer Slack shareholders $26.79 in cash and nearly 0.08 Salesforce shares for each share of Slack they own, representing an enterprise value of $27.7 billion (or $45.54 per Slack share) based on Monday’s market close.
“This is a match made in heaven,” Salesforce Chairman and CEO Marc Benioff said Tuesday. “Together, Salesforce and Slack will shape the future of enterprise software and transform the way everyone works in the all-digital, work-from-anywhere world.”
Wedbush analyst Daniel Ives on Tuesday described the transaction as “both an offensive and defensive move for Salesforce in its quest to further penetrate the enterprise cloud shift” that’s currently dominated by Microsoft.
Salesforce shares fell 3% in after-market trading within minutes of the announcement; they ended Tuesday down 1.8% and have soared nearly 45% this year, compared to 36% for the tech-heavy Nasdaq.
The firm also reported third-quarter results that blew past Wall Street expectations, including record revenue of $5.4 billion, compared to $5.3 billion expected, and earnings per share of 83 cents, beating average estimates by more than 10%.
Last Wednesday, a Dow Jones report that Salesforce was in talks to acquire Slack sent shares of the business communication app soaring 25% toward rumored acquisition levels; Slack stock, which has nearly doubled in price this year, climbed 2% on Tuesday.
“Despite facing stiff competition from Microsoft, Slack has been a clearly successful solution set penetrating enterprises and thus looks like the natural fit for Salesforce to beef up its collaboration and messaging footprint–and keep pace with [Microsoft’s] cloud dominance,” Ives said Tuesday. “If Salesforce wants to expand into enterprise and beyond its core gold mine of sales and marketing departments, this was the moment,” he adds, noting that the move “represents a major shot across the bow against Microsoft.”
What To Watch For
Although Salesforce investors are due for “modest dilution” due to the transaction’s equity component, Ives said the near-term pain should be worth the long-term gain and pointed to massive opportunity in the $1 trillion of cloud spending expected over the next decade.
Slack held its highly anticipated direct listing on the New York Stock Exchange in June 2019, pricing shares at $26 and seeing them end their first day of trading at nearly $39. By September, however, shares had plunged 33% in the wake of tepid financial results and investor worries about competition from Microsoft. The stock recovered over the summer to reach a then-high of $40 per share as stay-at-home pandemic stocks like Zoom, Peloton, and Netflix surged, but bearish analyst sentiment once again sank Slack shares in October. Slack is Salesforce’s third big acquisition target in the past two years. Last year it purchased data visualization company Tableau for $15.3 billion, and in 2018 it bought tech integration platform MuleSoft for $6.5 billion.
The Salesforce-Slack deal comes one day after S&P Global said it’s acquiring business analytics firm IHS Markit in a deal that’s set to be the largest merger this year–valued at $44 billion.
In August, Benioff insisted Salesforce wasn’t in the market for new acquisition targets. “We’re not in a good M&A environment,” he told investors during the firm’s second-quarter earnings call, so some on Wall Street are now questioning Benioff’s about-face. “He literally said it’s unlikely you will see us do large M&A in this environment,” RBH analyst Alex Zukin told Forbes on Monday. “Lo-and-behold, it’s opposite day.”
Salesforce’s Slack Purchase Would Mark An Abrupt About-Face For Benioff (Forbes)
Slack Shares Spike 25% On Report Of Salesforce Acquisition Talks (Forbes)