Can Salesforce Acquisition of Slack Slacken Growth of Teams?

Amid a week of speculation, the Salesforce acquisition of Slack became official late Tuesday with an eye-popping $27.7 billion deal. It will rank among the largest software deals ever, dwarfed only by IBM’s $34 billion acquisition of Red Hat.

Salesforce has made numerous major acquisitions, including last year’s Tableau deal for $15.7. In 2018, Salesforce acquired MuleSoft for $6.5 billion and Demandware for $2.8 billion in 2016. The Salesforce acquisition of Slack for cash and stock will cost more than all of those prior deals combined.

Expect the deal to close next year, presuming shareholder and regulatory approvals. Slack will become an operating unit within Salesforce, which founder and CEO Stewart Butterfield will continue to lead. The Salesforce acquisition of Slack dominated Tuesday’s investor call to discuss the company’s just-released quarterly earnings report.

Marc Benioff, Salesforce’s high-energy CEO, was euphoric about the deal during the call.

Salesforce’s Marc Benioff

“This is the next generation of Customer 360,” Benioff told investors, referring to the company’s connected application platform. “This is our ultimate vision of having this incredible user interface on top of all of the surfaces of all these channels, and all the collaboration running on all these devices, this integration, interaction, and the ecosystem and the industry that has created around it and all the applications.”

Nevertheless, investors did not share Benioff’s enthusiasm, particularly because of the large premium Salesforce agreed to pay for Slack. Salesforce shares closed nearly 9% lower Wednesday. The company is paying nearly 25 times Slack’s 2021 estimated revenue, which analysts predict will fall between $855 million and $870 million. Salesforce may have had to pay the premium if another suitor was in the mix. Indeed, that is likely what pushed up the value of the deal, according to a report by UBS analyst Karl Keirstead.

“We believe that there was another bidder for Slack that potentially caused Salesforce to move faster and potentially to pay more,” he said.

Does Salesforce Need to Own Slack?

Slack wouldn’t be the first enterprise chat communications tool from Salesforce. A decade ago, Salesforce launched Chatter, an enterprise social networking platform designed to enable real-time collaboration and communications. Salesforce launched Chatter with much fanfare as a tool that enabled real-time communications via feeds and status updates. But it never gained the momentum Benioff had envisioned.

Salesforce’s need to acquire Slack puzzled some analysts. As partners, Slack already tightly integrates into the Salesforce platform. Moreover, Benioff earlier this year had strongly eschewed the notion of embarking on a major acquisition, citing the current environment. Asked about that by Morgan Stanley analyst Keith Weiss during the earnings call, Benioff said: “I don’t think I could have ever imagined any acquisitions happening this year.”

But Slack’s Butterfield and Salesforce president and COO Bret Taylor presented the idea to Benioff of how Slack could build on the Salesforce user experience. That convinced Benioff.

“It’s like something that we could have never imagined,” Benioff said. “And when we look at the difference between partnering versus owning, it really means that …