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Salesforce’s $27.7bn Acquisition of Slack

By: Millan Gill, Tobias Winczer, Sahir Patel, Vikram Sharma


Deal overview


In December 2020, Salesforce announced its acquisition of the workplace software company Slack for $27.7bn. This deal is the 8th largest in technology industry history. Salesforce’s intention is to incorporate Slack’s communications software into its own cloud software. Salesforce hopes that the acquisition will help them better compete with the likes of Microsoft and their Office 365 package. This deal would also result in the end of Slack’s run as a publicly traded company with shareholders receiving $26.79 and 0.0776 shares in Salesforce for each of their shares in Slack. The deal is expected to close in the second quarter of 2022.




Company Details: Salesforce


Salesforce is a SaaS (software as a service) company that specialises in customer relationship management solutions (CRM). CRM software allows firms to digitally store and organise customer data on one system using cloud computing. This reduces the administration costs of a firm, with time being saved through Salesforce’s use of AI to allow for automated data entry. Types of data stored include the customer’s social media data, personal preferences on communications, company activity, and more. Salesforce software organises this information such that a full record of clients is readily available and can be used for a variety of purposes. For example the data can be utilised by the marketing department to create targeted marketing campaigns, or by the sales team to greater understand the needs of a client when pitching. Thus, the software can help connect different departments of a business to one another and increase collaboration due to the ease of access to data. The efficacy of Salesforce’s platform has been shown in the Salesforce Customer Success Survey from 2017-2019, where for digital commerce, online revenue has been increased by 15% across their global customers. Furthermore, using one platform for customer data management has reduced IT costs for businesses by 26%.


Salesforce’s versatility and ease of use has helped establish itself as a current market leader in CRM solutions. As of 2019, they held a market share of 18.4%, with their closest competitors, SAP and Oracle, holding only 5.3% and 5.2% respectively. Furthermore the International Data Corporation ranked Salesforce as the number one CRM provider in the world for the seventh consecutive year, a testament to their dominance.


Founded: 1999

Headquarters: San Francisco, US

CEO: Marc Benioff

Number of employees: ~49,000

Market Cap: $207bn (as of 30/01/2021)

EV: $203.35bn (as of 30/01/2021)

LTM Revenue: $17.1bn (as of 31/01/2020)

LTM EBITDA: $2.84bn (as of 31/10/2020)

LTM EV/Revenue: 11.89x

LTM EV/EBITDA: 71.70x

P/E Ratio: 58.89x



Company Details: Slack


Slack Technologies is a US-based technology company developing collaboration software. It offers a team communication application that provides messaging, video and voice calls, channel-based organized conversations, integrated file sharing, searchable history, and other capabilities as well as numerous integrated third-party tools.


Being originally architected as a chat tool for multiplayer gaming, the company has quickly pivoted towards developing a product for workplace communication and productivity. As the fastest-growing SaaS startup in history, Slack has reached ‘unicorn’ status (>$1bn valuation) just eight months after publicly releasing its product. The chat app now serves more than 77% of the Fortune 100 companies in a wide array of industries, including engineering, financial services, sales, IT, marketing, customer support, HR, project management and media.


Founded: 2009

Headquarters: San Francisco, US

CEO: Stewart Butterfield

Number of employees: ~1,700

Market Cap: $24.3bn (as of 30/01/2021)

EV: $23.65bn (as of 30/01/2021)

LTM Revenue: $0.83bn (as of 30/01/2021)

LTM EBITDA: -$276,332 (as of 30/01/2021)

LTM EV/Revenue: 28.49x





Short-Term Impacts


Initially Slack’s customer base was rapidly growing, seeing a 30% growth in 2019. However due to increased competition from the likes of Zoom and Microsoft Teams, Slack has been struggling especially during the pandemic with its share prices taking a tumble. Slack has also suffered from poor profitability since their public listing in 2019 as per their current loss-making on the operating level evidenced by their negative EBITDA.


However, Salesforce’s acquisition of Slack offers a significant opportunity for both companies. As 90% of Slack’s enterprise customers are also customers of Salesforce, there appears to be a substantial opportunity for cross-selling between customers. On top of that, the combined entity will be able to package their products into various bundles, thereby introducing more variability to their product offering and improving its competitive position with respect to the likes of MS Office 365. Finally, the combination will allow both firms to capitalise on the sheer size of their collective customer data pool and hence strengthen Salesforce’s presence in the data-sharing and data-analytics space.



Long-Term Impacts


Despite the pandemic resulting in an increasing reliance on digital services from the transition to home working, Slack benefitted less than its rivals from the pandemic, such as Zoom and Microsoft Teams. The growth of the company has also slowed from intense competition from Microsoft incorporating Teams into Office 365. Nevertheless, Salesforce agreed to pay a 55% premium for Slack, which increases the riskiness of this acquisition for Salesforce.

The deal is subject to approval of Slack shareholders and other customary closing conditions, such as regulatory approvals. Assuming it will be approved, in the long run, Slack’s ability to bridge companies through the use of Slack Connect will help to enhance Salesforce’s existing collaboration tool capabilities. It will therefore help the firm become more competitive and better rival Microsoft Teams and Google Meet.

Salesforce’s business strategy of completing acquisitions is evident through the combination of its recent $15.7bn purchase of the data visualisation software company Tableau, in addition to Mulesoft and now Slack. This highlights the firm’s ability to diversify into other areas ranging from data analytics, applications and collaboration. By continuing to fulfil this mission through acquiring and deeply integrating Slack into the firm, Salesforce hopes to increase cross-selling potential and increase customer retention. As a result, the firm will gain a larger market share, further strengthening its position in the CRM industry.

Additionally, the deal highlights the trend of consolidation occurring in the cloud software sector, which Microsoft and Salesforce have recently dominated. Both firms have been responsible for six of the nine largest cloud software acquisitions since buying technology through accessing digital services has increased in popularity.


With SelectHub’s CRM survey indicating that 43% of respondents were happy having on-premise CRM solutions as opposed to cloud based solutions, the potential for expansion in this market is clear. This opportunity for growth is made even more clear due to the demand-side trends in the market. Firms who are currently able to utilise on-premise CRM solutions are capable of doing so only because of the large size of the business and number of resources at hand. The trend currently indicates that as the quality of the CRM systems improves and additional features are added, these firms will switch towards cloud based solutions. Thus this deal will ensure the firm can exploit this trend and consolidate the market, as the new Salesforce for Slack app introduces improved communication features such as sending records directly from Salesforce through Slack to colleagues.





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