Investors are unenthusiastic about Salesforce.com (NYSE 🙂 acquisition of Slack Technologies (NYSE :), announced Tuesday, for $ 27.7 billion, largely in cash. It's the company's most expensive deal for software and cloud-based services to date.
Salesfore.com's stock has lost about 8% since the Wall Street Journal first reported the deal last week. The stock closed at $ 220.78 on Wednesday after falling about 8.5% on the day.
Salesforce.com 1-Year Chart.
The transaction values ??Slack, whose platform makes it easy for remote workers to communicate and coordinate work documents, for approximately $ 45.50 a share, a 54% premium over its untouched price, which equates to a multiple of approximately 26 times the forward sale.
As such, Slack is Salesforce's most expensive deal in several ways. The previous two acquisitions – $ 14.7 billion for Tableau Software last year and $ 5.8 billion for MuleSoft the year before – valued those companies at 11 times and 15 times forward sales, respectively, according to a WSJ report, in which Brent Thill of Group for these estimates has been cited.
But price isn't the only problem that makes investors uncomfortable. Some believe the acquisition will not deliver the kind of synergy and competitive advantage that founder and CEO Marc Benioff is trying to achieve through this deal, the biggest bet of his career.
First, Salesforce will compete directly with technology giant Microsoft (NASDAQ :), which aggressively promotes its workplace collaboration platform, Team. This video conferencing and chat software now has 115 million daily active users, up from 75 million in April.
Poster Child
Slack, on the other hand, did not take advantage of the great work of the pandemic – shifting from home like other companies did. At the end of last year, it stopped updating its number of daily active users when it reached 12 million.
Wedbush analyst Daniel Ives, who has an underperforming rating on the stock, called Slack a & # 39; poster child & # 39; for the (work from home) trend, adding that teams will aggressively look to court at Slack & # 39; s & # 39; unparalleled customer base. Ives said this remained "Slack's main competitive threat".
That said, there are legitimate reasons that led Salesforce to acquire Slack, which could make it a whole new type of business in an environment where customers are reconstructing how they work. With Slack under its belt, Salesforce is getting a strong opening to a collaboration interface, combined with its other relationship management services.
Despite the challenges posed by this acquisition, CEO Benioff remains quite optimistic about his bet, saying the deal was closed in heaven and is an important step toward doubling Salesforce's sales. In a statement on Tuesday he said:
"Together, Salesforce and Slack will shape the future of enterprise software and transform the way everyone works in the all-digital world of working from anywhere."
Bottom Line
Clearly the market has doubts about Salesforce's latest move and that will weigh on the stock price in the short term. But Benioff and his team have a history of strong growth through acquisitions.
For the past five fiscal years, Salesforce has grown sales by more than 24% each year, an achievement many tech CEOs dream of. More weakness in Salesforce stock should be seen as a buying opportunity in our view.
