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Is Salesforce (CRM) Eyeing an Acquisition Deal With Slack?

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Salesforce (CRM - Free Report) is in advanced talks to acquire the team collaboration tools and software maker Slack Technologies , The Wall Street Journal (WSJ) reported on Wednesday citing people familiar with the matter. The report stated that the two companies could reach an agreement as soon as next week, most probably ahead of Salesforce’s third-quarter fiscal 2021 results, scheduled for a Dec 1 release.

Following the WSJ report, shares of Slack appreciated 37.6%, while Salesforce depreciated 5.4% on Wednesday. With Slack’s market capitalization of more than $23 billion as of Nov 25, Salesforce would have to pay a hefty price to acquire the team collaboration software maker.

If any deal materializes between the companies, it is anticipated to be the largest ever acquisition for Salesforce after Tableau. Notably, the world’s biggest customer relationship management software solution provider had acquired Tableau last year for $15.3 billion. Prior to that, the company’s highest paid acquisition deal was for MuleSoft, which was bought in 2018 for $6.5 billion.

Rationale Behind Slack Acqusition

The acquisition of Slack is likely to be a win-win deal for Salesforce. Firstly, the deal will help Salesforce grab solid opportunities from the major digital transformation initiatives undertaken by organizations. Per IDC, global spending on technologies and services, which will enable digital transformation, is expected to reach $2.3 trillion in 2023, reflecting a compounded annual growth rate of 17.1% through 2019-2023.

Secondly, the buyout would enhance Salesforce’s team collaboration software capabilities. The company could integrate Slack’s software with its cloud-based office suits, with a goal of improving collaboration between sales and customer support teams.

Thirdly, the acquisition will bring a massive number of global customers to Salesforce. Notably, Slack had ended second-quarter fiscal 2021 with more than 130,000 paid customers.

Fourthly, the buyout would help Salesforce in better competing with Microsoft (MSFT - Free Report) , which is growing as a main rival with its Dynamics CRM apps. For the past few quarters, Microsoft’s Dynamic CRM has been growing at a double-digit pace with the company’s ramped-up efforts to cross-sell the products to enterprises.

Acquisitions: Key Growth Strategy

Acquisitions have been one of the key growth strategies, strengthening Saleforce’s position in the CRM solution-providing space. Notably, the buyouts of Tableau, ClickSoftware, Mulesoft, Datorama and CloudCraze over the last couple of years have been significantly beneficial for the company.

The acquisition of Tableau is in sync with the company’s strategy to diversify beyond its customer relationship management and provide more data insights to clients. The buyout contributed $652 million to Salesforce’s fiscal 2020 revenues.

Additionally, this June, the firm announced completing the acquisition of tech start-up Vlocity, which builds cloud and mobile software on Salesforce platform. The acquisition is anticipated to help Salesforce enhance its capabilities, and expand the customer base across the communications, media, healthcare, energy, insurance and financial services, and entertainment industries.

We believe Salesforce’s sustained focus on expanding its business through strategic acquisitions and investments will fuel growth over the long run.

Currently, Salesforce carries a Zacks Rank #3 (Hold).

A better-ranked stock in the broader technology sector is NVIDIA Corporation (NVDA - Free Report) , which currently carries a Zacks Rank #2 (Buy).

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