CRM application giant Salesforce Tuesday announced a definitive agreement to acquire collaboration app company Slack for US$27.7 billion. The announcement confirmed reports that had been circulating for nearly a week that the two companies were close to a deal.
There are a lot of details about the acquisition plan itself to dive into, as well as early information about just how Salesforce intends to integrate and leverage the Slack application as part of its cloud software portfolio. And then there are the wider implications of how the acquisition will alter the playing field in the competitive Software-as-a-Service arena.
Here’s a look at 10 things to know about the Salesforce-Slack acquisition agreement.
The US$27.7 billion price tag
The total enterprise value of the proposed acquisition has been pegged at US$27.7 billion. Slack shareholders will receive US$26.79 in cash and 0.0776 shares of Salesforce common stock (based on the 30 November closing price of US$245.80) for each share of Slack stock.
Salesforce has obtained commitments for a US$10 billion, 364-day senior unsecured bridge loan to help cover the cost of the acquisition. Salesforce expects to fund the cash consideration with cash from its balance sheet and approximately US$10 billion of proceeds from a combination of the issuance of debt securities and/or term loans.
Slack stockholders must approve the deal, which is also subject to regulatory and other customary closing conditions. The companies expect to complete the acquisition during Salesforce’s fiscal 2022 second quarter, which ends in July 2021.
Salesforce’s largest acquisition
The Slack acquisition is the biggest in Salesforce’s history, based on the US$27.7 billion total value of the deal.
Salesforce has made more than 60 acquisitions throughout its history, according to a Wikipedia entry. The list of acquisitions includes ExactTarget (now Salesforce Marketing Cloud) in 2013 for $2.5 billion, Demandware (now Salesforce Commerce Cloud) in 2016 for $2.5 billion, integration platform vendor MuleSoft in 2018 for $6.5 billion and data analytics software developer Tableau Software for $15.7 billion.
Two fast-growing cloud companies
CEO Marc Benioff frequently notes that Salesforce, for much of its history, has been one of the fastest growing software companies ever and the fastest growing in the cloud computing/Software-as-a-Service arena.
Salesforce surpassed the US$10 billion annual revenue threshold in fiscal 2018 and is on track to record US$21.1 billion in sales for fiscal 2021 (ended 31 January 2021) – up 23 percent year over year. And the company is shooting for revenue around US$25.5 billion in fiscal 2022.
Slack recorded revenue of US$630 million for its fiscal 2020 (ended Jan. 31, 2020) and is forecasting total revenue of US$876 million for fiscal 2021 (ending Jan. 31, 2021).
The new company organisational structure
Slack will become an operating unit of Salesforce and will continue to be led by Slack CEO Stewart Butterfield and his management team.
Salesforce will apparently take the same approach with Slack as it has with other major acquisitions, most notably analytics technology developer Tableau Software. Tableau is also a Salesforce business unit that operates relatively independently under the management of CEO Adam Selipsky.
Customer base overlap
Slack has more than 12 million active daily users, according to the company’s website. While many are using the free collaboration application, Slack has 142,000 paying customers as of 31 October, according to a Salesforce presentation.
There are more than 64,000 customers now using Slack Connect, the company’s application for collaborating with people outside of a company such as customers, partners and vendors.
Among Slack’s paid customers, 1,080 are generating more than US$100,000 in annual recurring revenue. Slack corporate customers include Starbucks, TD Ameritrade, Target and Nordstrom.
During the Salesforce fiscal 2021 Q3 earnings call Tuesday, Benioff said that more than 90 percent of Slack’s enterprise customers are also Salesforce customers.
Product integration plans
The vision is that Slack will become the front end “engagement layer” for the entire Salesforce cloud software portfolio – what Salesforce refers to as the Salesforce Customer 360 platform.
The Slack Connect collaboration application will be “where the conversations happen,” according to a Salesforce presentation on the acquisition. Slack will also be the vehicle that developers use to bring Salesforce workflows to users.
The two companies have worked together prior to the acquisition deal to develop links between their product offerings. Salesforce was one of Slack’s earliest integration partners and the two vendors have expanded and tightened their partnership over the last few years.
In October 2019 the two companies announced the Salesforce for Slack application, which allows sales and services professionals to more easily access and share information from Salesforce applications within Slack.
Salesforce will also have to decide the future of Chatter, the company’s own collaboration software it has offered since 2010 and which would appear to be redundant with the Slack acquisition.
The combined application developer ecosystem
The Salesforce AppExchange has more than 5000 third-party applications and the ecosystem of programmers that develop software around the Salesforce platform – what Salesforce calls “Trailblazers” – numbers more than 2.6 million.
Slack lists more than 2,400 complementary applications in the company’s third-party application directory and there are more than 885,000 developers actively building applications on the Slack platform.
Salesforce and Slack in the channel
Slack launched its Services Partner Program in November 2019 for partners that provide consulting, development and integration services for Slack applications. The program provides technical training, sales enablement and go-to-market support. Services partners include Onix, Cprime, Rainmaker, and Robots & Pencils.
Slack’s channel efforts are overseen by Richard Hasslacher, head of global GTM alliances and channels.
Slack also has partner programs for managing relationships with its technology partners, including Google, Workday, Zoom – and Salesforce. Slack also works closely with security and compliance partners such as McAfee, Okta and Symantec.
Salesforce.com works with thousands of consultants, service partners and systems integrators who, like Slack’s service partners, provide consulting, business transformation, and implementation and integration services around Salesforce’s cloud applications. The vendor also works with AppExchange partners who develop third-party applications that work with the Salesforce platform.
Stepped up competition with Microsoft
Salesforce competes with Oracle, SAP and Microsoft with its CRM software-as-a-service applications. But the Slack acquisition will put Salesforce on a competitive collision course with Microsoft and its fast-selling Teams collaboration software.
Microsoft introduced Teams in 2017 and the application has become increasingly prominent in workplaces – especially gaining traction this year as the COVID-19 pandemic forced many people to work from home. In October Microsoft CEO Satya Nadella said the application was being used by 115 million people, a 53 percent increase just from April.
Earlier this year, Slack hit Microsoft with an antitrust complaint in the European Union, accusing Microsoft of tying Teams to the Office 365 suite.
The acquisition across the street
Salesforce and Slack are both based in San Francisco, the former at the massive Salesforce Tower at 415 Mission St. and the latter at 500 Howard St. – just across a plaza known as Salesforce Park.
During the Q3 earnings call Tuesday Benioff made light of the proximity of the two companies.
“I look out my window and you know what I see? Slack’s logo. Because Slack’s building is right next to my building. And I’m looking into their building all the time,” he said, adding that he can see Slack CEO Stewart Butterfield wave at him.