Written by Norman Isaac Mwambazi

Salesforce closes $27.7 billion acquisition of Slack Technologies

Early this week, the announcement of video communications company Zoom (ticker: ZM) to buy a cloud contact centre called Five9 …

Early this week, the announcement of video communications company Zoom (ticker: ZM) to buy a cloud contact centre called Five9 in an all-stock transaction valued at $14.7 billion made news with the deal expected to close by Q2 FY2022.

Today, more news from the Mergers & Acquisitions (M&A) world emerged, and it is about the close of an M&A deal where software giant Salesforce (ticker: CRM) has officially acquired the messaging app, Slack Technologies (ticker: WORK), worth $27.7 billion in cash and stock. This is by far Salesforce’s largest acquisition since its founding more than two decades ago.

The agreement for Salesforce to acquire the popular messaging and collaboration software platform, Slack Technologies, was signed last December. However, the process was temporarily halted by an investigation by the Antitrust Division of the U.S. Department of Justice.

In February this year, the Justice Department asked Salesforce and Slack to provide it with more information regarding the former’s planned acquisition of the latter. The investigation indicated the Biden Administration’s increased scrutiny into transactions of prominent tech companies to clamp down on monopolistic behaviour and unfair competition practices of “Big Tech.”

According to its filing to the regulators, even with this investigation halting the acquisition process, Salesforce expected the deal to close before July ends. It has achieved its goal since the Justice Department told the company that it had completed its investigations of the deal last week. This deal emphasizes Salesforce’s plan to bet big on a digital work-from-anywhere future that the coronavirus pandemic has fueled. 

Slack’s stock

Slack’s stock is up 7.9% year-to-date, and it was trading at $45.20 a share by the close of the trading session on Tuesday, July 20, 2021. Since the closing of its acquisition, it hasn’t traded again. Slack’s Q1 FY2022 was glittering, reporting improved revenues and calculated billings compared to the Q4 FY2020.

Q1 FY2020 financial highlights for Slack Technologies:

•           Total revenue: $273.4 million, an increase of 36% year-over-year.

•           Calculated Billings: $278.5 million, an increase of 35% year-over-year.

•           Generally Accepted Accounting Principles (GAAP) gross profit: $234.1 million, or 85.6% gross margin, compared to $176.0 million, or 87.3% gross margin in Q1 FY2021.

•           Non-GAAP gross profit: $238.0 million, or 87.1% gross margin, compared to $179.2 million, or 88.9% gross margin Q1 FY2021.

•           GAAP operating loss: $55.3 million, or 20.2% of total revenue, compared to a $76.2 million loss in Q1 FY2021, or 37.8% of total revenue.

•           Non-GAAP operating income: $10.8 million, or 4.0% of total revenue, compared to a $16.6 million loss in the Q1 FY2021, or 8.3% of total revenue.

•           GAAP net loss per basic and diluted share: $0.05.

•           Non-GAAP net income per diluted share: $0.08.

Speaking after the release of Q1 FY2022 on June 3, 2021, Slack Chief Financial Officer Allen Shim said that the company generated a record amount of free cash flow and expanded non-GAAP operating margins 1200bps year-over-year in the first quarter.

Salesforce stock

Speaking at the release of the Q1 FY2022 earnings report, Salesforce Chairman and CEO Marc Benioff said that this is the best quarter Salesforce has ever had and that everyone at the company was excited about the figures the company posted because “it was just a phenomenal Q1.”

•           Total revenue: $5.96 billion, up 23% year over year.

•           Total operating cash flow: $3.2 billion, up 74% year over year.

•           Non-GAAP operating margin: 20.2%.

•           GAAP Earnings Per Share (EPS): $0.50

•           Non-GAAP EPS: $1.21

•           Capex for Q1 FY2022: $171 million, leading to free cash flow of $3.1 billion, up 99% year over year.

•           Salesforce revised their revenue expectations, with Benioff saying the company raised revenue expectations by $250 million to $26 billion for FY2022. Of this, Salesforce expects to rake in between $6.22 billion to $6.23 billion in revenue in Q2 FY2022, which is a growth of approximately 21% year over year.

Speaking after the close of the Slack’s acquisition deal, Benioff said in a statement that the two companies would work tirelessly as one to define the future of enterprise software, and in the process, create a leading cloud platform on which organizations will be able to deliver success to employees and customers from anywhere.

Stewart Butterfield, who is Slack’s co-founder and has been its CEO since its founding in 2009, called the deal “a once-in-a-generation opportunity to rethink and reshape how and where we work.” After the acquisition by Salesforce, Butterfield is retaining his role as Slack CEO.

As companies and businesses assess the possibility of having employees continue to work remotely like they have been (forcibly) doing during the pandemic, and as they deliver goods and services to customers over the internet (cloud), Salesforce and Slack fancy themselves in a unique position to be the go-to platform for businesses moving forward. Butterfield could not hide his “excitement for what is to come” after the deal.

As governments directed lockdowns and issued stay-at-home orders last year and some portions of this year to curb the spread of COVID-19, companies found themselves with limited options. They had to shift to their operations online if they stood any chance of staying afloat.

Due to this, technology companies that provide remote work solutions like Salesforce, Slack, Zoom, Amazon Web Services, Microsoft Azure and its Teams software greatly benefited from this shift. Businesses used these companies and more to connect with employees, clients, suppliers, delivery service providers, and partners, among other stakeholders, to keep their business running during the pandemic.

Salesforce said in a statement after closing the deal that company or organization headquarters are no longer on famous locations like Madison Avenue or Main Street, no! They are now in the cloud.

“Every business in every industry has to optimize for a digital-first employee, customer, and partner experience,” Salesforce added.

After closing the deal, Salesforce’s stock rose 0.6% to $241.65 as investors felt that the company’s performance is in a strong position. Since the opening of today’s trading session, Salesforce is trading at $245.11 a share, up 1.26%. The company has a market capitalization of $226.97 billion.