FT: Salesforce in talks to buy Slack in huge cloud software deal

25/11/2020

THE FINANCIAL TIMES reports:

Cloud software company Salesforce is in talks to buy Slack, the work messaging app, in what would be one of the biggest software transactions to date, according to people familiar with the matter.

An announcement could be made early next week, one person close to the deal said.

Marc Benioff, the founder and chief executive of Salesforce, has been on a hunt for acquisitions for some time and has been looking at several targets, according to another person briefed on the matter.

Shares in Slack were up 22 per cent after The Wall Street Journal first reported that the two companies had discussed a deal, sending the company’s market value above $20bn.

Salesforce stock dropped about 3 per cent on the news. Salesforce has been among the big winners of the coronavirus pandemic due to a surge in cloud software spending. By contrast, Slack — an app used by workers both to collaborate and access other cloud applications — has failed to catch this year’s “work from home” wave, leaving its shares lagging rivals in the red-hot cloud software sector.

An acquisition would strengthen Mr Benioff’s efforts to challenge Microsoft to become the leading cloud software provider for office workers, making Slack a “front end” for Salesforce users to tap into the company’s applications, including its core customer relationship management service.

Microsoft’s Teams — built as a rival to Slack — has become a window into the software group’s other applications, including its CRM software, potentially giving it a way to outflank Salesforce.

Salesforce’s shares have more than doubled since the pandemic struck the US in early March, sending many office employees to work from home and prompting businesses to digitise their operations.

Shares in Slack, which came to Wall Street through a direct listing last year, have lagged following two quarters of disappointing earnings. Before news of the talks with Salesforce, they were trading 23 per cent below their closing price on the first day of trading last year, despite a 78 per cent surge in the cloud software sector this year.

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Meanwhile, MARKETWACH wrote that a “Salesforce acquisition of Slack could trigger M&A wave“. It said that:

Salesforce.com Inc.’s CRM, -5.86% acquisition of Slack Technologies Inc. WORK, +32.35% would be a major challenge to Microsoft Corp. MSFT, +0.12%, one analyst said Wednesday, following a report of a possible deal in the works, and may set off a wave of software acquisitions. “This deal would be a major shot across the bow at Microsoft with the company’s Teams offering a direct messaging competitor against Slack that has been a clear hurdle to growth and now would be a two horse race between Microsoft and Salesforce,” said Wedbush analyst Dan Ives in a note Wednesday. Microsoft already butts heads with Salesforce, which specializes in customer relationship management software, with its Dynamics 365 CRM service.

Salesforce’s acquisition of Slack could also set off a string of software company acquisitions across the tech industry well into next year, Ives said.

“This would also have a ripple impact for Google GOOG, +0.38% GOOGL, +0.22% and its cloud endeavors and put more pressure on [Google Cloud CEO Thomas] Kurian and GCP to do a collaborative cloud deal over the next 3 to 6 months to keep pace with the likes of Amazon AMZN, +2.17%, Microsoft, and Salesforce.” Slack shares were last up more than 23%, while Salesforce shares were down about 3%. Slack shares closed Tuesday at $29.58 giving the company a market cap of $16.89 billion. The report was not the only shake-up in the cloud industry Wednesday as Amazon’s AWS public cloud service was experiencing a major outage, grounding many online services that depend on it.