eResearch | Salesforce (NYSE:CRM), a leading customer relationship management (“CRM”) platform, announced the acquisition of Slack Technologies (NYSE:WORK), an enterprise communications platform.
Salesforce operates a cloud-driven CRM platform with a complementary suite of SaaS-based offerings that enable businesses to integrate marketing, sales, and commerce operations.
The transaction provided Slack with an enterprise value of $28 billion and an EV/Revenue of 32x based on Slack’s forecasted revenue for 2021. Slack shareholders will receive $26.79 in cash and 0.0776 shares of Salesforce for each Slack share.
Salesforce expects to fund the cash portion of the transaction by using cash on its balance sheet and raising $10 billion in a senior unsecured 364-day bridge loan facility. The new loan facility included commitments from Citigroup (NYSE:C), BofA (NYSE:BAC), and JPMorgan Chase & Co. (NYSE:JPM).
Slack will operate under Salesforce as a separate operating unit and will continue to be led by CEO and founder, Stewart Butterfield, who is also known for starting the photo-sharing website, Flickr.
The integration of Salesforce’s Customer 360 platform with Slack’s communication platform will enable users and developers to connect across various systems, apps, and devices.
FIGURE 1: Salesforce Customer 360 Platform Integration with Slack
On the press release, Marc Benioff, CEO of Salesforce, said
“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 expects to complete the acquisition of Slack by FQ2/2022, subject to approval from Slack stockholders and regulators.
Slack
Slack operates an enterprise channel-based communications platform that collaborates with developers and integrates with various apps to support internal collaboration and workflows.
In FQ2/2021, Slack generated revenue of $216 million, an increase of 49% from the same period last year, adding 8,000 new paid customers. Slack also improved its bottom line as it reported a net loss of $73 million compared with $360 million in the same period last year.
Slack currently serves 142,000 paying customers, with over 1,000 customers that have more than $100,000 in annual recurring revenue (“ARR”). In addition, Slack has 87 paid customers with greater than $1 million in ARR.
The communication platform serves a range of companies including small businesses, Fortune 500 companies, academic institutions, non-profits, and governments in more than 150 countries.
Some of Slack’s largest customers include Starbucks (NASDAQ:SBUX), Target (NYSE:TGT), and TD Ameritrade, a broker owned by Charles Schwab (NYSE:SCHW).
Salesforce and Slack Merger
The merger of Slack and Salesforce combines two extensive ecosystems of apps and active developers that support multiple facets of business across all industries.
Slack’s ecosystem of 885,000 developers and 2,400 apps will be combined with Salesforce’s 2.6 million developers and 5,000 apps.
FIGURE 2: Salesforce and Slack Merger
In 2021, the two companies expect a combined revenue of $22 billion, with Salesforce and Slack forecasted to grow revenue by 23% and 39%, respectively.
Merger Accelerated due to COVID-19
As the pandemic shuttered the doors of offices across the world, demand surged for technologies supporting a work-from-anywhere environment.
Several large technology companies recently announced plans to allow employees to work permanently from home, including Twitter (NYSE:TWTR), Shopify (TSX:SHOP), and Facebook (NASDAQ:FB).
In a recent interview with Bret Taylor, COO of Salesforce, Dan Primack from Axios asked if the acquisition of Slack would have taken place had the COVID-19 pandemic not happened.
Mr. Taylor responded, “that’s a surprising no”, as he spoke on how strongly the pandemic contributed to the deal.
In the response, Bret Taylor also stated
“I have not had a conversation with an executive team or with a customer in the past six months that didn’t involve distributed work, digital workforce, digital customer relationships, because of the pandemic.”
Work-From-Anywhere Technologies
Demand continues to rise for technologies such as cloud storage, workplace communication, and video conferencing, which is stimulating M&A activity for work-from-anywhere technologies.
Earlier this year, Verizon Communications (NYSE:VZ) announced the acquisition of BlueJeans Network, an enterprise video conferencing and events platform, previously reported by eResearch in April 2020: Verizon Acquires Video Conferencing Platform BlueJeans Network.
It will be interesting to see how the competitive landscape evolves as large companies such as Verizon acquire various platforms that support remote working.
FIGURE 3: NASDAQ 100 vs Salesforce (blue) and Slack (purple) – 1 Year Chart
Other industry-related articles:
- September 2020: Remote Workplace Technology Quarterly Update – Dropbox, Slack, and Zoom Experience a Surge in Revenue
- May 2020: Impacts to Office Real-Estate Space as Twitter, Shopify, and Facebook Announce Permanent Remote Work Standards
- March 2020: Dropbox, Slack, and Zoom: Essential Technologies for Transforming Businesses into Remote Environments
Notes: All numbers in USD unless otherwise stated. The author of this report, and employees, consultants, and family of eResearch may own stock positions in companies mentioned in this article.
