Salesforce Seeks to Capitalize on Shift to Remote Work With $27.7 Billion Slack Acquisition

By Jemima McEvoy Wednesday, December 2, 2020

Software company Salesforce Inc. made its biggest acquisition to date on Tuesday, officially sealing the deal on a $27.7 billion purchase of Slack Technologies Inc. Murmurs of the pending marriage between the customs relationship management powerhouse and the workplace chat app emerged last week as reporters caught onto late-stage discussions between the two — however, now officially in action, here’s how this megadeal could impact the technology industry.

If completed, this acquisition, which would be the largest since Salesforce was founded 21 years ago, could stoke competition in the software market and bulk up Salesforce’s defenses against rivals like Microsoft, which previously passed on buying Slack for a much lower price than what Salesforce paid. “This is a match made in heaven,” said Salesforce’s co-founder and CEO Marc Benioff in a Tuesday statement. “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.”

The acquisition of Slack is the latest in a slew of recent purchases by Salesforce in a bid to seize the rare potential of the pandemic era’s impact on the workforce. More Americans than ever before are working from home due to the ongoing prevalence of COVID-19, with many top companies — including Dropbox, Facebook, Okta, Shopify, Square, Twitter, and Zillow — indicating that they may never return to a traditional office structure. Therefore, technologies facilitating the ease of remote work have seen interest boom. The founder of Zoom, Eric Yuan, is now one of the 35 richest people in the US, though his fortune recently dipped below $3.1 billion.

Other companies are making moves like Salesforce. Last month, Adobe announced its plans to acquire workforce management software company Workfront in a $1.5 billion deal. Over the summer, software company Atlassian Corporation, which sells project management and development tools, said it would buy enterprise services business Mindville.

Meanwhile, Salesforce has been aggressively acquiring businesses for years under the tenure of Benioff — accumulating a total of 60, per a count by The New York Times — and has generated significant enthusiasm for its momentum over the course of this year. The company’s stock has jumped by 40% since January of 2020, leading to a valuation of $220 billion. Among the companies picked up by Salesforce recently: mobile software provider Vlocity, which was purchased in February for $1.3 billion; data analytics provider Tableau, bought last year for $15.3 billion; and data integration company Mulesoft bought in 2018 for $6.5 billion.

Just as much as Salesforce, the world’s biggest seller of software used by companies to manage their consumer relationships, is seeking to sharpen its edge in the increasingly cut-throat and competitive software industry, Slack has (as with any deal) a lot to gain too. Slack, a popular workforce app founded by Stewart Butterfield in 2010, has previously drawn the attention of major players like Google, Amazon, and, as mentioned above, Microsoft. So why say yes to the takeover offer now? Well, Slack — then valued at $19.5 billion — has seen its shares fall since going public last year. Though seeing a revenue rise of nearly 50% to $216 million during the quarter ending in July, the company has said that layoffs among some of its customers have been bad for business.

However, one of the key stressors for Slack is an increased threat from competitors like Microsoft’s rivaling communication platform, Microsoft Teams, which reported an increase of 50% to 115 daily users from April through October. Slack said last year that it had 12 million daily users and has not made public an updated figure. Microsoft Teams has unique benefits like coming free with Office 365 suite and strong video conferencing capabilities, slightly dulling the light of Slack’s brightly shining star. Other competitors include Cisco, Facebook, Google, and more. This acquisition could put Slack on track to achieve its goal of becoming more than a communications tool for businesses.

“As software plays a more and more critical role in the performance of every organization, we share a vision of reduced complexity, increased power and flexibility, and ultimately a greater degree of alignment and organizational agility,” said Butterfield in a statement praising the deal. “Personally, I believe this is the most strategic combination in the history of software, and I can’t wait to get going.”

Though this deal has the potential to be great, buffing both sides up against mega-rival Microsoft, analysts also point out that this is a very large amount of money to put up in a very packed playing field; particularly for a company that’s only seen modest growth in its shares compared to other remote-work companies this year. Needless to say, there is a certain amount of risk involved in the agreement.

“When you’re a scrappy start-up going against an 800-pound gorilla that’s one of the most well-capitalized companies in existence, it's tough to compete,” Logan Purk, a senior analyst at Edward Jones, told The New York Times. “This is more or less saying, ‘We can’t compete with Microsoft Teams anymore. We need more firepower.’

About the Author

Headshot for author Jemima McEvoy

Jemima is a journalist who enjoys reporting on business, particularly small business and entrepreneurship.

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