Salesforce, the leading CRM provider which recently exceeded $20 billion in yearly revenue, has announced its acquisition of Slack in a substantial $27.7 billion agreement, further expanding its presence in the enterprise social sphere. Discussions regarding a potential deal began last week, leading to an increase in Slack’s stock value.

Marc Benioff, co-founder and CEO of Salesforce, expressed strong enthusiasm for the acquisition. “This represents an ideal synergy. By uniting Salesforce and Slack, we will define the future of business software and revolutionize how individuals work in today’s fully digital and remote-work environment,” Benioff stated.

Stewart Butterfield, CEO of Slack, mirrored this sentiment. “As software becomes increasingly vital to organizational success, we share a common goal of simplifying processes, enhancing capabilities, and fostering greater organizational alignment and responsiveness. I firmly believe this is the most impactful strategic alliance in software history, and I am eager to begin,” Butterfield commented.

Effective communication is essential for every employee in every organization, and Slack is well-positioned to facilitate this. Furthermore, it supports communication with clients and partners, which will be particularly beneficial for Salesforce and its comprehensive suite of products.

Slack became an attractive acquisition target due to its recent performance. By the beginning of 2020, the company had experienced a roughly 40% decrease in value since its initial public offering. Following its latest earnings report, the company’s value declined by 16%, and prior to news of the Salesforce deal, its share price was only slightly above its direct listing price. Combined with net losses of $147.6 million over the two quarters ending July 31, 2020, Slack’s public valuation and challenges in achieving consistent profitability made it vulnerable to a takeover, and the eventual price offered was notable.

Current market valuations, as reported by Yahoo and Google Finance, place Slack at just over $25 billion, indicating that the market accurately assessed the company’s worth, with a post-announcement increase of approximately 48% from its pre-deal valuation.

This acquisition positions Salesforce as a more direct competitor to Microsoft, its long-standing rival, whose Teams platform has been a significant challenger to Slack. Microsoft previously considered acquiring Slack but ultimately decided against it, and is now actively prioritizing Teams to maintain its market share in the enterprise software sector.

Slack initially distinguished itself through its seamless integration with other business software applications. Coupled with the use of automated bots, this capability allows Salesforce customers to centralize their work within Slack without needing to switch between different platforms.

This deal follows Salesforce’s 2016 purchase of Quip for $750 million, which provided a platform for collaborative document sharing. Integrating Quip with Slack strengthens Salesforce’s social capabilities, surpassing its earlier, less successful attempt at enterprise social networking with Chatter.

Interestingly, Salesforce explored acquiring Twitter in 2016, the same year Microsoft showed interest in Slack, but ultimately withdrew from the negotiations due to shareholder concerns regarding the social media platform’s controversial nature.

Slack was established in 2013, though its roots trace back to Glitch, an online multiplayer game company founded in 2009. Although the game itself was unsuccessful, the startup developed an internal messaging system during its development that ultimately evolved into Slack.

The company’s rapid growth enabled Slack to raise over $1 billion in funding while privately held, achieving a valuation of $7 billion before its public debut last year. Despite this success, Slack consistently faced competition from established players such as Microsoft, Cisco, Facebook, Google, Asana, and Monday.com.

Slack’s journey to the public market was marked by considerable anticipation and high expectations. The company gained significant recognition within the enterprise software industry, and initially appeared poised for long-term independence. However, its public existence has been cut short by this substantial acquisition, reflecting the competitive dynamics of the technology sector.