Salesforce plays its biggest M&A gambit to date to snap up Slack for $27.7 billion

Profile picture for user slauchlan By Stuart Lauchlan December 1, 2020 Audio mode
Summary:
The game's afoot - and it's a $27.7 billion one as Salesforce takes over Slack and ups the stakes against Microsoft and Teams.

salesforce slack
(Salesforce/Slack)

In what’s shaping up to be a busy week for the company, Salesforce has confirmed its worst kept secret and announced it’s buying workplace messaging firm Slack for an eye-watering $27.7 billion, its biggest deal ever and a certain precursor to fresh conflict with Microsoft.

On the eve of kicking off a virtual version of its Dreamforce conference and coinciding with the release of its Q3 fiscal 2021 numbers, Salesforce announced the cash-and-stock deal for Slack, news of which first emerged in earnest last week, but which has long been mooted as a possible gambit by the CRM firm. The deal is expected to close in Q2 fiscal 2022.

The quarterly earnings day is ironically appropriate timing for this latest move by Salesforce as it was on the occasion of its Q2 earnings, a mere three months ago, that CEO Marc Benioff appeared to pour cold water on the prospect of any major mergers and acquisition moves in the near future when he declared:

We're not in a good M&A environment. This isn't part of our plan right now. We don't see that. We really see focusing on our business.

Flash forward to today and that stance has been flipped on its head to the degree that Salesforce is not only embarked on M&A activity, but its most expensive piece of M&A to date. Prior to this, the firm paid out $6.5 billion for integration specialist Mulesoft and $15.7 billion for data visualization firm Tableau.

Perhaps fittingly, the deal tops the $26.2 billion that Microsoft paid for LinkedIn, a company that Benioff had aspired to acquire for his own and didn’t care much for missing out on.  As it is, the Slack deal provides Salesforce with a useful upgrade to its enterprise arsenal, not least in terms of countering the advance of Microsoft Teams. As to the wider reasoning behind the merger - and its timing - Phil Wainewright’s definitive analysis here is well-worth a read.

In the formal statement confirming the deal, Benioff and Slack founder and CEO Stewart Butterfield made the requisite effusive noises about the potential of a combined entity. Benioff said:

Stewart and his team have built one of the most beloved platforms in enterprise software history, with an incredible ecosystem around it. 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.

Meanwhile Butterfield stated:

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. Personally, I believe this is the most strategic combination in the history of software and I can't wait to get going.

How will that combination work in practice? More details inevitably will follow, but for the moment it’s said that Slack will become “an operating unit” of Salesforce with Butterfield staying on for now as CEO.

Don't forget the numbers

As for those Q3 fiscal 2021 Salesforce numbers, almost overshadowed by the Slack confirmation, they were strong. Revenue was up 20% year-on-year to $5.42 billion, with net income of $1.08 billion. Subscription and support sales were up 20% to $5.09 billion.

Looking forward, Salesforce expects Q4 revenues of between $5.665 billion to $5.675 billion, a lower growth rate of 17%, and full year revenue of between $21.1 billion and $21.11 billion, up 23% year-on-year. Going into fiscal 2022, Q1 growth is expected to stay at around 17%, with a full year projection of 21%, including a $600 million contribution from Slack.

My take (so far)

As I said at the start, it’s going to be a busy few days for Salesforce. Later today Benioff will host the quarterly results analyst conference call, during which doubtless there will be further commentary about the latest addition to the Ohana. We’ll update on that and more on the Q3 earnings as and when and then join the CEO and guests - surely Butterfield will be a ‘surprise' addition to the party? - for the virtual Dreamforce keynote on Wednesday. Stay tuned!