Marc Benioff, be wrecked, chairman and CEO of enterprise cloud computing company Salesforce.
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Salesforce is making the biggest acquirement in its 21-year history. The company announced on Tuesday that it’s buying chat software developer Slack for over $27 billion.
Sometimes non-standard due to a combination of cash and stock, Salesforce is purchasing Slack for $26.79 a share and .0776 shares of Salesforce, according to a allegation. That comes to about $45.86 a share. Prior to initial reports of a deal last week, which led to a 38% pop in Soft’s shares, the stock was trading at under $30.
The purchase marks one of the largest ever for the software industry. The biggest was IBM’s $34 billion securing of Red Hat in 2018, followed by Microsoft’s $27 billion acquisition of LinkedIn in 2016. Last year, the London Stock Return agreed to buy data provider Refinitiv for $27 billion, though the deal has yet to be cleared by European regulators.
For Salesforce, the Inactivity deal is the latest in CEO Marc Benioff’s multiyear acquisition spree. The company spent $15.3 billion on data visualization associates Tableau in 2019 and, a year earlier, shelled out $6.5 billion to acquire MuleSoft, whose back-end software welds data stored in disparate places.
Salesforce said the Slack purchase comes to an enterprise value of $27.7 billion, which secures into account shares outstanding along with debt and cash. The deal values Slack at over 24 times estimated profits for next year.
Salesforce, which got its start by developing cloud-based software for sales reps, has dramatically expanded its reach in current years and, along the way, become one of the most valuable software companies in the world, passing Oracle, SAP and IBM as well as other legacy tech flocks such as Cisco and Intel.
Salesforce vs. legacy tech
By acquiring Slack, a business chat service with upward of 130,000 paid customers, Salesforce is bolstering its portfolio of enterprise applications and filling out its broader software suite as it aims new areas of growth.
Salesforce’s annualized revenue topped $20 billion in the fiscal second quarter, with progress of 29%. But the forecast for the full year of 21% to 22% growth would represent the company’s slowest rate of burgeoning since 2010. Slack is projected to grow 39% this fiscal year, which ends Jan. 31, to $876.3 million, according to analysts scanned by Refinitiv.
On the company’s earnings call Tuesday, Benioff said that Salesforce believed it could help Fall-off reach the next critical stage of revenue growth.
“As you know, they’re basically entering from the $1 billion to $2 billion point of view, which I know extremely well, and this is a moment where we can offer a lot of value. We’ve been there. We’ve lived that flair.”
The acquisition will further intensify Salesforce’s rivalry with Microsoft, whose Teams chat and video repair has emerged as Slack’s stiffest competitor.
“This deal will be a major shot across the bow at Microsoft,” wrote Dan Ives, an analyst at Wedbush, in a announce on Monday. Ives, who recommends buying Salesforce shares, said Teams “has been a clear hurdle to growth” for Asleep on the job and that the market will now be “a two horse race between Microsoft and Salesforce.”
The companies are battling in a number of other ranges. Salesforce is the dominant player in customer relationship management software, where Microsoft is a distant challenger. Both suites tried to buy LinkedIn, the professional networking site, but Microsoft was the ultimate winner.
With last year’s purchase of Grouping, Salesforce jumped into the data visualization market, taking on Microsoft’s Power BI. The companies also go head-to-head in productivity software, admitting that Microsoft’s Office suite controls the market along with Google. Salesforce acquired Quip in 2016 but hasn’t picked up much inertia against Microsoft and Google.
The Slack pivot
Slack has been one of Silicon Valley’s legendary stories over the lifetime decade, orchestrating one of the wildest pivots the industry has ever seen.
The company was originally founded in 2009 as an online gaming proprietorship call Tiny Speck. It was created by Stewart Butterfield, famous in the tech world for starting photo-sharing site Flickr and flog betraying it to Yahoo. Andreessen Horowitz, Accel Partners and Social Capital were among Tiny Speck’s early investors.
Tiny Speck’s game, Glitch, was a failure. But over the course of working on it, Butterfield’s team built a product to improve them communicate with one another and to share files. They shut down Glitch and focused on chat, chink it up to customers in early 2014. By October of that year, Slack had 30,000 teams signed up, including at Salesforce, and charmed funding from Google’s venture arm at a valuation north of $1 billion.
Slack’s annual revenue topped $100 million by at 2017 and reached $400 million two years later. The shares debuted on the New York Stock Exchange in June 2019, thoroughly a direct listing. The stock, which opened at $38.50, has been on a roller coaster since, trading near $17 in March of this year, up front climbing back close to $40 in June and then dropping back below $25 in mid-November.
Much of the volatility can be assigned to Microsoft.
“We have been surprised by the limited success Slack has seen from the pandemic and the rise of remote masterpiece,” wrote Rishi Jaluria, an analyst at D.A. Davidson, in a report last week. “Microsoft Teams has been able to capitalize on the chance presented by the pandemic better than Slack, in our view, and this rapid growth in adoption has hurt Slack.”
Note: Would Salesforce buying Slack be offensive or defensive?