Salesforce is making the biggest acquisition in its 21-year history. The company announced on Tuesday that it’s buying chat software developer Slack for over $27 billion.
Through a combination of cash and stock, Salesforce is purchasing Slack for $26.79 a share and .0776 shares of Salesforce, according to a statement. That comes to about $45.86 a share. Prior to initial reports of a deal last week, which led to a 38% pop in Slack’s shares, the stock was trading at under $30.
The purchase marks one of the largest ever for the software industry. The biggest was IBM’s $34 billion purchase of Red Hat in 2018, followed by Microsoft’s $27 billion acquisition of LinkedIn in 2016. Last year, the London Stock Exchange agreed to buy data provider Refinitiv for $27 billion, though the deal has yet to be cleared by European regulators.
For Salesforce, the Slack deal is the latest in CEO Marc Benioff’s multiyear acquisition spree. The company spent $15.3 billion on data visualization company Tableau in 2019 and, a year earlier, shelled out $6.5 billion to acquire MuleSoft, whose back-end software connects data stored in disparate places.
Salesforce said the Slack purchase comes to an enterprise value of $27.7 billion, which takes into account shares outstanding along with debt and cash. The deal values Slack at over 24 times estimated revenue for next year.
Salesforce, which got its start by developing cloud-based software for sales reps, has dramatically expanded its reach in recent years and, along the way, become one of the most valuable software companies in the world, passing Oracle, SAP and IBM as well as other legacy tech companies such as Cisco and Intel.
By acquiring Slack, a business chat service with over 130,000 paid customers, Salesforce is bolstering its portfolio of enterprise applications and filling out its broader software suite as it seeks new areas of growth.
Salesforce’s annualized revenue topped $20 billion in the fiscal second quarter, with growth of 29%. But the forecast for the full year of 21% to 22% growth would represent the company’s slowest rate of expansion since 2010. Slack is projected to grow 39% this fiscal year, which ends Jan. 31, to $876.3 million, according to analysts surveyed by Refinitiv.
On the company’s earnings call Tuesday, Benioff said that Salesforce believed it could help Slack reach the next critical stage of revenue growth.
“As you know, they’re basically entering from the $1 billion to $2 billion phase, which I know extremely well, and this is a moment where we can offer a lot of value. We’ve been there. We’ve lived that life.”
The acquisition will further intensify Salesforce’s rivalry with Microsoft, whose Teams chat and video service has emerged as Slack’s stiffest competitor.
“This deal will be a major shot across the bow at Microsoft,” wrote Dan Ives, an analyst at Wedbush, in a report on Monday. Ives, who recommends buying Salesforce shares, said Teams “has been a clear hurdle to growth” for Slack and that the market will now be “a two horse race between Microsoft and Salesforce.”
The companies are battling in a number of other areas. Salesforce is the dominant player in customer relationship management software, where Microsoft is a distant challenger. Both companies tried to buy LinkedIn, the professional networking site, but Microsoft was the ultimate winner.
With last year’s purchase of Tableau, Salesforce jumped into the data visualization market, taking on Microsoft’s Power BI. The companies also go head-to-head in productivity software, though Microsoft’s Office suite controls the market along with Google. Salesforce acquired Quip in 2016 but hasn’t picked up much momentum against Microsoft and Google.