Slack is not the brightest star in the tech firmament. Shares have struggled to reach the highs breached immediately after last year’s direct listing: investors fretted that Microsoft’s free-to-use Teams encroached on its turf and recent quarterly earnings have disappointed. That subdued price has won the US workplace messaging app a suitor in Salesforce, an altogether bigger and more traditional purveyor of office suite software.
Investors piled into Slack, ramping up its market value to $23.2bn, a 38 per cent premium over the previous day’s close giving an enterprise value of $22.55bn. That works out at 23 times forecast sales, on S&P Capital data, in line with peers like Paycom Software, albeit well below zeitgeisty Zoom Video.
For Salesforce, which produces software that helps offices manage customer relations, the amount is manageable: around a tenth of its own market capitalisation. It will likely use its own stock in payment. Unlike Slack, Salesforce shares have doubled since the pandemic lows of March. They trade on a rich 95 times trailing earnings.
The San Francisco-based company is a veteran of M&A, having snaffled a clutch of smaller workplace tools. It bought cloud collaboration company Quip in 2016. Three years later, Salesforce acquired Tableau Software, which allows users to create graphics and charts. Neither were in Salesforce’s traditional terrain, that is the point of these purchases, nor especially cheap. It paid a 42 per cent premium, or 11 times sales for Tableau.
The roll-up strategy still makes sense. Salesforce’s software is the hidden backbone of many corporations’ everyday customer marketing and management. Tableau and Slack give Salesforce an inroad into communications, and a punt on the tools that are increasingly treading on email’s turf. Slack’s Workflow builder, an Asana-like tool for streamlining processes, also expands its offering. The market clearly expects more such deals: witness the 13 per cent bump in Asana’s share price.
These transactions are more about cross-marketing than cost savings. The idea is to broaden services, retaining more clients paying higher subscriptions.
Salesforce is building a fortress in an enterprise sector dominated by Microsoft and SAP. Remote working means enterprise software and services increasingly link colleagues with one another, as well as with customers. Slack plays to that strength. Its currency may never be so high again. For its investors, a transaction would be well timed.
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