Investors have certainly got the message as news of the potential cloud software deal sent Slack (NYSE: WORK) shares up 38% yesterday. As of time of writing, Slack is now worth over $23 billion, which would make the deal Salesforce’s biggest acquisition to date.
The popular workplace chat company has had a rocky year, falling to lows of $15.10 per share in 2020. The stock has lagged following two disappointing earnings reports this year, despite a 78% surge in the wider cloud software industry driven by the COVID-19 pandemic. The app, used by workers to collaborate and access cloud applications, has unfortunately failed to be included in 2020’s work-from-home trend, which has seen other remote-focused companies soar this year.
By contrast, Salesforce has really benefited from the pandemic due to a surge in demand for cloud software. The software giant’s shares have more than doubled since March, which sent office employees home and encouraged companies to digitalize their businesses. A large portion of the sale is said to be in Salesforce stock, as CEO Marc Benioff apparently wants to use the company’s high market valuation as currency in the deal.
However, Salesforce shares have fallen more than 5% since discussions of the possible deal were announced. Investors could either be worried about the cost of acquiring Slack or are simply unimpressed by the potential deal.
Salesforce and Slack deal
The San Francisco-based company could benefit in many ways from buying Slack, the chance to cross-sell the two companies’ products to each other’s existing clients being an obvious one. Slack could also unlock growth for Salesforce by introducing it to the many start-up companies that use the chat platform, which could be a potential revenue stream for Salesforce who mainly host mega-corporations.
Slack provides much more than just a chat service; its software allows companies to embed workflows easily. This is something that Salesforce can do now, but with Slack, its clients could work both inside and outside of Salesforce’s ecosystem to build workflows in a much smoother way.
It would be fair to say that Salesforce has been acquisitive over the last few years, snapping up Tableau Software for $16 billion in 2019 and MuleSoft for $6.5 billion in 2018. Salesforce’s $750 million acquisition of Quip back in 2016 gave it a document sharing feature, but since then, Salesforce Chatter has been the company’s only social tool, meaning a deal with Slack would give Salesforce synergy between its clients and tools.
The deal would also help Slack find a corporate home to ensure it does not get crushed by Microsoft (NASDAQ: MSFT), which has recently spent millions on resources for its Teams service. Teams is a direct competitor to Slack, as the Microsoft chat feature has almost doubled in clients this year. The two companies are currently in a legal battle after Slack accused Microsoft of anticompetitive behavior when it offered Teams as part of its Office 365 enterprise. Slack claimed the move was designed to eliminate rivals.
Salesforce and Microsoft have been competing against each other for years now, with both companies attempting to buy LinkedIn. Benioff has been looking for an acquisition to strengthen Salesforce in its challenge against Microsoft to become the leading provider of cloud software for corporations.
Is Slack a good buy?
This potential deal could be huge for both companies. The acquisition would give Slack the resources and expertise of a $225 billion company and allow Salesforce to further build out its collaboration products. As companies across the globe ramp up cloud spending, the merger has the potential to take on industry titan Microsoft.
Word on Wall Street is that a deal could be reached as early as next week.
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Financial Writer at MyWallSt
Nicole's favorite stock is Etsy because she loves its original and handmade items. She believes people are going to stop buying mass-produced items and start purchasing ‘one of a kind’ fashions and furnishings. In a world of sameness, Etsy has the advantage.