Salesforce acquires Slack for $27.7 billion

 December 1st, 2020

Salesforce (NYSE: CRM) has entered into a definitive agreement to acquire Slack Technologies, Inc (NYSE: WORK). Slack Shareholders will receive $26.79 in cash and 0.0776 shares of Salesforce common stock for each Slack share, this represented a transaction value of $27.7 billion.

Rumours started formulating last week that Salesforce would continue their acquisition dominance and acquire Slack. The COVID-19 pandemic has driven the demand for collaboration and communication during remote work. Slack has a great platform with a seamless user interface (UI)/user experience (UX), coupled with Salesforces Customer 360 will create a revolutionary experience for customers. The timing is great for Slack, as the synergies with Salesforce can help them compete with Microsoft Teams. 

The board of directors at both Salesforce and Slack have approved the transaction and the Slack board has recommended that current Slack shareholders approve the transaction. The transaction is expected to close in the second quarter of Salesforce's fiscal year 2022.

The cash portion of this transaction is expected to be funded by new debt and cash on Salesforce's balance sheet. Salesforce has obtained commitments from Citigroup Global Markets Inc., Bank of America, N.A, JPMorgan Chase Bank, N.A for a $10.0 billion senior unsecured 364-day bridge loan facility. 

Salesforce received advisory service from BofA securities, Inc., and legal services from Wachtell, Lipton, Rosen & Katz and Morrison & Foerster LLP. Slack received advisory from Goldman Sachs & Co LLC and Qatalyst Partners LP and legal services from Latham & Watkins LLP and Goodwin Procter LLP.

Slack closed up 2.24% at $43.84 but was down after-hours -(0.64) % to $43.56. Meanwhile. Salesforce closed down -(1.81) % to $241.35 and slid further -(4.81) % after-hours to $229.75. 

1-Year Returns from November 29th, 2019 - December 1st, 2020

On a one year basis, both Salesforce and Slack have outperformed the S&P 500. Both stocks have shown great strength in a year where their technologies have been relied upon.

Salesforce's customer 360 helps to deliver a consistent cross-channel experience for customers. This ability to easily connect apps including Slack platform is what will help make this transition so smooth.  

Slack originally went public on the New York Stock Exchange (NYSE) last June, they started trading at $38 and a valuation of $23 billion. Slack has a 52-week range of $15.10-$44.15 but usually trades between $25-$32. 

Slack's 2020 Financials:

• Gross Margin of 84.6%
• EBITDA Margin of -(83.7)%
• A current ratio of 1.9x
• A Quick ratio of 1.8x
• A Total Debt/Equity of 31.3%
• Total Liabilities/Total Assets of 49.8%
• Current Enterprise Value of $24.34 Billion
• EV/Sales (LTM) of 18.7x
• Price/Sales (LTM) of 20.0x
• Price/Book Value of 15.5x

Slack Capital History & Background:

• Slack was founded in 2009 in the United States
• They have 2,754 employees
•  They raised their first seed round in 2009 for $1.85M
• They raised $9.23M in their Series A round in 2010
• They raised a large Series H round in 2018 for $558.26M from 22 investors
• Some of Slack's notable venture capital investors include Microsoft, Wellington Management, Atlassian, SoftBank Investment Advisers, Comcast Ventures, GV, Bloomberg Beta, Social Capital, and others.

Industry Outlook:

The industry has gained traction with recent remote work trends and success in the industry. This industry has seen success from many high-growth companies like Slack, Asana, Trello, Monday.com, and others. This rise in automation will continue to accelerate with technologies such as artificial intelligence (AI) and machine learning (ML). The market is expected to experience a CAGR of 16.5% to reach $96.36 billion by 2025.

Overall, this is a good deal with a strong potential for synergies. The productivity software space has become fragmented with many new entrants due to the pandemic. Look out for further consideration in the future.

Source(s):

Salesforce. Salesforce Signs Definitive Agreement to Acquire Slack. December 1st, 2020. Source. Accessed December 1st, 2020.

Yahoo Finance!. Slack Technologies, Inc. Source. Accessed December 1st, 2020.

Yahoo Finance!. salesforce.com, inc. Source. Accessed December 1st, 2020.

Koyfin. Performance. Source. Accessed December 1st, 2020.

Venture Beat. Salesforce acquires Slack for $27.7 billion. Paul Sawers. December 1st, 2020. Source. Accessed December 1st, 2020.

Zacks. Enterprise Communication Gains Steam: Watch MSFT, WORK, CSCO. January 21st, 2020. Source. Accessed December 1st, 2020.