Salesforce buying work-chat service Slack for $27.7B
SAN RAMON, Calif. — Business software pioneer Salesforce. com is buying workchatting service Slack for $27.7 billion in a deal aimed at giving the two companies a better shot at competing against longtime industry powerhouse Microsoft.
The acquisition announced Tuesday is by far the largest in the 21-year history of Salesforce. The San Francisco company was one of the first to begin selling software as a subscription service that could be used on any internet- connected device instead of the more cumbersome process of installing the programs on individual computers.
Salesforce’s flamboyant founder and CEO Marc Benioff hailed the “cloud computing” concept as the wave of the future to much derision initially.
But software as a service has become an industry standard that has turned into a gold mine for longtime software makers. Microsoft for one has developed its own thriving online suite of services, known as Office 365, which includes a Teams chatting service that includes many of the same features as Slack’s 6- yearold application.
Slack in July filed a complaint in the European Union accusing Microsoft of illegally bundling Teams into Office 365 in a way that blocks its removal by customers who may prefer Slack.
Microsoft also has been posing a threat to Salesforce’s main products, a line-up of tools that help other companies manage their customer relationships.
“For Benioff, this is all about Microsoft,” Wedbush Securities analyst Dan Ives said of Tuesday’s deal. “It’s just clear Microsoft is moving further and further away from Salesforce when it comes to the cloud wars.”
Benioff left no doubt he considered the deal to be a major coup, after losing out to Microsoft in 2016 when the two companies were both vying to buy the professional networking service LinkedIn.
“It’s a match made in heaven,” Benioff said during an ebullient conference call. “We see in Slack a once-in-a-generation company and platform. It’s a central nervous system for so many companies.”
Salesforce has been building on its success in recent years to diversify into other fields, largely through a series of acquisitions that included its previous largest deal, a $15.7 billion purchase of data analytics specialist Tableau Software last year.
Many of the deals have been financed with Salesforce’s stock, which is worth nearly seven times more than it was a decade ago to lift the company’s current market value to $220 billion. Salesforce is using its stock to pay for roughly half of the Slack purchase, with the rest being covered with some cash, with some of the money being borrowed during a time of extraordinarily low interest rates.
Slack, on the other hand, hasn’t proven as popular with investors, even though its service that publicly launched in 2014 is being increasingly used by companies and government agencies looking for more nimble alternatives than email. Before news reports of a potential deal with Salesforce surfaced last week, Slack’s stock was still hovering around its initial listing price of $26 when the company went public nearly 18 months ago.
“This is a stellar exit strategy for Slack,” said Kate Leggett, an analyst at Forrester Research. “Microsoft Teams is eating Slack’s lunch.”
Slack co-founder Stewart Butterfield will be hoping this sale works out better than when another company he started, photo sharing service Flickr, was sold to Yahoo 15 years ago. Flickr got lost in the shuffle at Yahoo amid years of turmoil before it was finally sold again in 2018 to SmugMug.