Salesforce is buying workplace messaging app Slack for $27.7 billion in its biggest deal ever

Salesforce is buying workplace messaging app Slack for $27.7 billion in its biggest deal ever
Photo by Kimberly White/Getty Images for Fortune
  • Salesforce is buying the workplace messaging app Slack for $27.7 billion, it announced on Tuesday.
  • The deal is Salesforce's largest acquisition ever and represents a more aggressive foray into office communication technology at a time when remote work has made chat and collaboration tools more essential than ever.
  • The acquisition could help Salesforce compete with its longtime rival Microsoft, which has benefited from an explosion in use of its Microsoft Teams app amid the pandemic.
  • This is the third large acquisition Salesforce has made in the past few years, following Tableau for over $15 billion in 2019 and MuleSoft for $6.5 billion in 2018, as it looks to diversify its product portfolio.
  • Slack also stands to benefit from the deal, as the company has seen relatively flat growth rates during the pandemic, while other collaboration tools have seen skyrocketing demand and revenue.

Salesforce is buying the workplace messaging app Slack for $27.7 billion, Salesforce announced on Tuesday. It is Salesforce's largest acquisition ever and represents a more aggressive foray into office communication technology for the cloud giant at a time when remote work has made collaboration tools more essential.

The deal is a combination of cash and stock, a detail that CNBC first reported on Monday. Slack shareholders will get $26.79 in cash and 0.0776 shares of Salesforce common stock for each Slack share. Slack's stock was down over 3% on the news, while Salesforce shares went were also down about 3%. Before reports of the deal talks, Slack had a market cap of about $17 billion. It was valued at roughly $25 billion when markets closed on Tuesday.

The deal could help Salesforce compete with its longtime rival Microsoft, which has benefited from an explosion in use of its Microsoft Teams app amid the pandemic. Analysts say the addition of Slack — itself the chief competitor to Microsoft Teams — will give Salesforce a way to similarly connect all of its various apps and services by way of a collaboration tool, making it more competitive.
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Microsoft Teams had 115 million daily active users as of October, up from the 75 million it announced in April and its 44 million from mid-March. Slack, meanwhile, hasn't given an updated number for its daily active users since October 2019, when it had 12 million daily active users. Slack did say it had 130,000 paid customers as of its second quarter, up from 100,000 a year ago, with its biggest customers including IBM and ViacomCBS.

"Stewart and his team have built one of the most beloved platforms in enterprise software history, with an incredible ecosystem around it," Salesforce CEO Marc Benioff said in a press release. "This is a match made in heaven. 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."

"Salesforce started the cloud revolution, and two decades later, we are still tapping into all the possibilities it offers to transform the way we work. The opportunity we see together is massive," Slack CEO Stewart Butterfield said in a press release. "Personally, I believe this is the most strategic combination in the history of software, and I can't wait to get going."
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After the deal closes, Slack will become an "operating unit" of Salesforce, with Butterfield remaining as its CEO.

The news came almost a week after The Wall Street Journal reported the two companies had recently held discussions about a deal. It's also one of the largest deals the software industry has seen in recent years. Salesforce's purchase of Slack ranks among mega-acquisitions from its peers: IBM's purchase of Red Hat for $34 billion in 2019 and Microsoft's purchase of LinkedIn for $27 billion in 2016 are two of the largest software deals in recent memory.
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The acquisition gives Salesforce a robust, well-established workplace communication platform to add to its product suite. Though Salesforce already had its enterprise social network, Chatter, and collaboration product Quip, which it acquired in 2016, neither tool has the same popularity as Slack.

The purchase also marks the third major acquisition that Salesforce has made in the past few years in an attempt to diversity its offerings and build out its platform. It bought the data-visualization company Tableau for over $15 billion in 2019 and MuleSoft for $6.5 billion in 2018. And it's working to integrate both into the broader Salesforce ecosystem. Salesforce has also made smaller acquisitions, like the industry-specific software maker Vlocity for $1.3 billion in February.

Additionally, the move is in line with Salesforce's strategy of relying on acquisitions to drive its growth as it faces what UBS analysts recently called a "lack of innovation."
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The deal also benefits Slack, which has seen relatively flat growth rates during the pandemic, while other collaboration tools like Zoom and DocuSign have seen skyrocketing demand and revenue. Competition with Microsoft Teams could also be putting pressure on Slack, analysts previously said.

Salesforce and Slack also already have a partnership that allows users to move more seamlessly between the cloud services. Their headquarters are just blocks apart in downtown San Francisco.

The announcement comes as Salesforce reports third quarter earnings that beat Wall Street estimates. It also announced that CFO Mark Hawkins will retire. He will be in his role until January 31, 2021, and then transition to an advisory role through October 2021. Amy Weaver, former chief legal officer, will take over as CFO.
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