Opinion: Salesforce deal for Slack creates greater threat for Microsoft
With a $ 27.7 billion deal to buy Slack Technologies Inc. – its biggest acquisition to date – Salesforce.com Inc. is poised to become an even bigger threat to Microsoft Corp. in the world of enterprise software. But it could be his most difficult merger yet.
As expected after the reports were released last week, Salesforce CRM,
announced on Tuesday that it had reached an agreement to buy Slack Technologies Inc.
for $ 27.7 billion in cash and stocks. Slack, which went public in 2019, is known for its business-focused instant messaging system. The deal is expected to close in the second quarter of Salesforce’s 2022 fiscal year, next July.
The deal will give Salesforce its biggest competitor yet to Microsoft, which offers competing Teams messaging service. Salesforce said the combination of its Customer360 platform with Slack would be “transformative for customers and the industry.”
However, Salesforce is facing some pressure with this deal. Slack has recently come under serious pressure from faster growing Microsoft teams, even as demand for both products has increased with more and more employees working from home during the pandemic.
“To illustrate [Slack’s] Critically, the company had 12 million Daily Active Users (DAUs) as of September 2019. Meanwhile, Teams has surpassed [Slack] with 13 million DAU two months ago, ”Mizhou Securities analysts said in a recent client note. “[Teams] has since exploded to over 75 million DAU as of 4/29/2020, and to over 115 million DAU last month. Slack hasn’t updated its daily active users since last fall, a move seen by many as a sign of weak growth.
Evercore ISI Securities analyst Kirk Materne had similar thoughts. “The problem is that even with the weight of Salesforce in the enterprise market, competing with Microsoft Teams in its core market is going to be extremely difficult, and convincing investors of the merits of this deal will be difficult,” he wrote. . Materne also noted that the deal could remove much of Salesforce’s goodwill towards investors and create a new “surplus” on the stock.
According to Salesforce Founder and CEO Marc Benioff, the deal was offered to him by Slack CEO and Co-Founder, Stewart Butterfield, and Salesforce Chairman, Bret Taylor. “When they came to me and brought me this idea that Salesforce and Slack should come together, my eyes lit up. I said ‘This is the next generation of Customer 360,’ ”Benioff said on a conference call Tuesday. “It’s our ultimate vision to have this amazing user interface, on top of all of these services, across all of these channels and all of the collaboration on all of these devices. “
Salesforce developed its own collaboration tool called Chatter, which it shut down in 2018, a move, some analysts say, due to low customer adoption. “There’s no question that Slack has an incredible approach to collaboration in a way we never could have imagined,” Benioff said when asked about Chatter.
An analyst asked why Salesforce had to spend $ 28 billion to buy the company, instead of forming a partnership. Benioff cited the company’s past successes with larger mergers amid a spate of around 60 deals in recent years.
“We look at this and say it is a game changer and we know how to do it,” Benioff said. “It really means that we are able to do things with our technology that we just couldn’t do as partners. “
Some on Wall Street, like Dan Ives of Wedbush Securities, believe Salesforce needs to keep making big mergers to move forward in the cloud business. “While Salesforce hasn’t done any mergers and acquisitions in the future, the company is still entering the cloud shift,” Ives said in a note.
Some investors are also likely to be concerned about the odd funding structure of the cash component of the deal, which provides for a $ 10 billion bridging loan with a term of 364 days, although no analysts asked about funding the deal on the company’s appeal. Salesforce shares fell 4.25% in after-hours trading.
For Benioff, closing the deal may also be a way back on Microsoft, which outperformed its bid for the social recruiting network LinkedIn in 2016. Several years ago, Microsoft was also said to have been in talks to buy Salesforce, but those talks failed, according to the Wall Street Journal. And now Slack is crushed by Microsoft. In July, Slack filed a complaint with the European Union about the software giant’s allegedly predatory behavior, saying it was using its dominance to gain users into Teams.
“This merger between Salesforce and Slack, like the one between book publishers Simon & Schuster and Bertelsmann, is fundamentally defensive, the result of a refusal by antitrust authorities to enforce the law,” Matt Stoller, research director at American Economic Liberties Project in Washington, said in a statement. “Slack is trying to find a way to defend itself against Microsoft’s underpricing and bundling of its Teams product. ”
Benioff also made much of his friendship with Slack’s Butterfield and the proximity of businesses to San Francisco, where the Salesforce Tower is now the tallest skyscraper in the city.
“The Slack building is right next to my building, and I look around their building all the time, Stewart waving at me and now I’m waving to him and now we’re hugging each other when the pandemic is over,” Benioff said. .
Whether Salesforce will now be able to beat Microsoft at Slack’s own game is a bigger question.