Salesforce Acquisition of Slack set to be ‘a match made in heaven’?

‘A match made in heaven’: these were the words of Salesforce CEO Marc Benioff following the completion of his company’s acquisition of the enterprise communication platform, Slack. The deal, announced on the 15th December 2020, is set to cost Salesforce approximately 27.7 billion USD. Relating to Slack, a company that is currently valued at around 20 billion USD, the short-term implications of this deal are that each share will be priced at 26.79 USD, with the deal set to close in the second quarter of 2022.

 

The main pressing question regarding this acquisition is why Salesforce, an industry-leading company whose revenue has grown 29% during the COVID-19 crisis to its current $17.1 billion, would want to acquire a communications company that has yet to return a gross profit since its founding in 2009.

 

The answer seems to stem from Slack’s valuation, which has arisen from its unique business model. Slack’s appeal stems from the fact that it provides a more efficient alternative to the seemingly timeless concept of business emails. It allows employees to create “channels”, akin to a group chat, that are used to funnel all the information concerning one project into one page. This has become hugely popular with businesses and as a learning resource, favouring unprecedented growth. Its pre-lockdown membership figures were around 10 million users, 100,000 of whom were paying customers. Unsurprisingly, due to the requirement of secure, remote communication platforms throughout the course of the pandemic, Slack’s membership numbers have surged to 12 million, 142,000 of which are paid.

 

Another advantage of this acquisition by Salesforce is that it helps strengthen the Salesforce 360 platform which the company has been developing. With the platform’s aim being to create a hub for all sides of large corporations and customers to communicate with each other, having a sturdy communication platform is essential to its success.

 

As promising as this acquisition may seem, Slack’s success is heavily dependent on two issues being resolved. Firstly, Slack is in direct competition with Microsoft Teams and the general consensus is that it is fighting a losing battle. Teams has approximately ten times more members than Slack, and there are rumours circulating that it will join Microsoft’s Office 360 platform which further boost future growth prospects.

 

Secondly and arguably most importantly, Slack is yet to return a profit in its 12-year existence. Its net loss widened from $141 million to $571 million in 2019, but it narrowed from $479 million to $211 million in the first nine months of 2020. For the company to fully realise its potential and to not be a burden to Salesforce a quick turnaround in fortunes is crucial.

 

Slack’s history shows that although conceptually it is stable and home to a growing userbase, the deal is by no means a guaranteed success due to the competitive nature of the industry and Slack’s failure to return profits. That is not to say, however, that the acquisition is destined to fail. Following this acquisition, Slack could be employed in a way that could really enhance Salesforce and their new Salesforce 360 Platform. Moreover, the acquisition takes Slack out of direct competition with the goliath that is Microsoft and its Teams platform, which further removes restrictions on long-term growth.

 

By Paul Brown

Sector Head: Venkat Rajasingham

 

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