By Aron Adamski, BSc Economics @LSE
OVERVIEW OF THE DEAL:
- Announcement date: 01/12/2020
- Industry: Internet Software and Services
- Implied EV/LTM Revenue: 36.12x
- Financing: Cash-and-stock
- Acquirer advisors: BofA Securities
- Target advisors: Qatalyst Partners, Goldman Sachs
Salesforce.com entered into an agreement to acquire Slack Technologies for $27.7bn. Under the terms of the deal, each share of Slack will be converted into right to receive 0.0776 shares of Salesforce common stock and the right to receive $26.79 in cash. The offer represents a 55% premium to share price before the news of the deal floated.
This will be Salesforce’s largest acquisition to date. Salesforce expects to fund the cash portion of the transaction consideration with a combination of new debt and cash on its balance sheet. Salesforce has obtained a commitment from Citigroup, Bank of America, and JPMorgan Chase for a $10bn senior unsecured 364-day bridge loan facility.
Slack will be required to pay Salesforce a termination fee equal to $900 million in cash in case of termination. Slack will continue to be led by CEO Stewart Butterfield and his leadership team.
The completion of the merger is subject to certain customary closing conditions, vote of the common stockholders and approval for listing on the NYSE of the shares of Salesforce common stock to be issued.
The transaction is anticipated to close in Q2 2022.
COMPANY DETAILS: Salesforce.com
- Founded in: 1999
- Headquartered in: San Francisco, California, USA
- Market Cap: $203.9bn
- EV: $200.3bn
- FY20 EBITDA: $2.28bn
- EV/ LTM EBITDA: 87.1x
Salesforce.com develops enterprise cloud computing solutions with a focus on customer relationship management. The company offers Sales Cloud to store data, monitor leads and progress, forecast opportunities, and gain insights through analytics and relationship intelligence, as well as deliver quotes, contracts, and invoices. It also provides Service Cloud, which enables companies to deliver personalised customer service and support, as well as a field service solution that enables companies to connect agents, dispatchers, and mobile employees through a centralised platform, which helps to schedule and dispatch work, and track and manage jobs in real-time.
COMPANY DETAILS: Slack Technologies Inc.
- Founded in: 2009
- Headquartered in: San Francisco, California, USA
- Market Cap: $24.48bn
- EV: $23.83bn
- LTM EBITDA: -$0.528bn
- EV/ LTM EBITDA: -45.13x
Slack Technologies is an international software company who owns Slack, a proprietary business communication platform. Slack offers many IRC-style features, including persistent chat rooms (channels) organised by topic, private groups, and direct messaging. Slack’s core team is largely drawn from the founders of Ludicorp, the company that created Flickr, an image and video hosting service.
STRATEGIC RATIONALE:
SYNERGIES THROUGH PLATFORM INTEGRATION
One of the main highlights of this deal is that there is an immense scope for revenue synergies. With Salesforce’s wider range of sales and marketing Slack will be able to increase its user base, and Salesforce will become a stronger rival to Microsoft by integrating Slack into its current software.
ENTERING RAPIDLY GROWING MARKET
The pandemic forced consumers and workers to rely more heavily on digital services, with many predicting a permanent shift to work-from-home.
“We really see the world as fundamentally having shifted this year. We think the new way of working is permanent.” ~ Bret Taylor COO Salesforce
As result, the digital solutions demand was booming over the past year, resulting in increased consolidation of digital services, especially in the cloud software sector. Microsoft and Salesforce have between them sealed 6 of the 9 largest cloud software acquisitions, and SAP and Oracle also turned to cloud dealmaking to accelerate the transformation of their traditional software businesses in order to keep up with new buying habits.
RISKS AND UNCERTAINTIES:
The 55% premium is very optimistic given that Slack hasn’t performed well relative to the rest of the digital services, missing out on the cloud software boom. In September, Slack announced sharp revenue growth slowdown in Q3 from the loss of customers due to the economic downturn. Before news of the potential deal emerged, Slack’s shares traded at 20% below the IPO price.
Nevertheless, the high price might be more reflective of the scarcity of cloud software targets for sale, than of any significant growth potential of Slack. After all, Salesforce is renowned for its high-premium deals, like the acquisition of MuleSoft in 2018, where they paid a 38% premium.
“The burden of proof is squarely on their shoulders to convince investors, when they said they wouldn’t be doing anything like this for a while” ~ Alex Zukin, Analyst RBC Capital Markets
