Since rumors of a deal were first leaked right before Thanksgiving, shares of salesforce.com (NYSE:CRM) are down almost 15%, while Slack Technologies (NYSE:WORK) stock has surged 43%. On the Nov. 25 edition of "The Wrap" on Motley Fool Live, host Jason Hall and Motley Fool contributors Asit Sharma and Brian Stoffel discussed the deal, which seems to be an imperfect fit for Salesforce. The catch? Salesforce has made a lot of acquisitions in its history, and they almost always work out really well.
What happens next? Does Salesforce's long history of successful acquisitions continue, or will this, its biggest buyout ever, be the one that flops? See what our experts think in the video below.
Jason Hall: Is this going to be gravy on the top for Salesforce or is it a turkey of a deal? Brian, what do you say?
Brian Stoffel: I think that since I'm not intimately involved with all the details of either one of these companies, although I use Slack all the time, that's how we communicate before these shows, what I will say is I would make my determine and say this is gravy. But it's not for any particular reason other than Salesforce is the original SaaS company. So they created this thing that's made tons of Motley Fool investors a lot of money and this (acquisitions) has been their MO.
Acquisitions? I'm not a fan. It's not pretty, it's usually really ugly, usually waste a ton of money. But there are some exceptions, and Salesforce is one of those exceptions. I mean, they've been around forever and they're still growing by 20% per year. I mean, it's crazy. I believe that they've earned the benefit of the doubt for me. Gravy.
Jason Hall: I think that's a good take, right? Sometimes you just have to trust management and this is a company that's proven they can do this sort of thing. Not a bad start here, I have to say, not a bad start. How about you, Asit. What do you think? Is this a turkey of a deal or it's little bit of gravy on the top?
Asit Sharma: I'm so inclined to say it's gravy, but just for some variety, I'll say it's a turkey of a deal. I will preface this by saying that I have called so many deals that Salesforce has undertaken turkeys only to be proven wrong.
Early on, I was very caught up in the fact that the company had trouble growing organically over the years. I'm talking about Salesforce.com, and they have become the serial acquirer of other businesses and it was really hard in the early days to see how this picture would come together. The answer is in how nicely Salesforce.com can bring companies into its ecosystem and sell their products to its existing customer base. I still think that Salesforce.com is not a great organic grower of its own cash flow, but they have a talent for picking up companies.
Now, if this deal is the case, then I think let's look at the turkey side. I have to play devil's advocate here. I'm going to try to see if I can grab this really quickly and maybe if either of you has this, what the price change today in work is?
Jason Hall: Yeah, I could tell you right now. So Slack, since the beginning of the year, the stock is now up 78.8%. The vast majority of that was today. Coming into today, before today, it was up around 30% here today.
Asit Sharma: So you're talking about, I'm guessing, $6-$7 billion of market cap that Slack basically has tacked on today? This is sort of corporate malfeasance in some ways, if this is going to be the case. The reason is that when you deal in stock-for-stock deals, especially if they're not nailed down, you want to keep the lid on it and a lot of times what we're seeing in the marketplace is that Salesforce.com is using its stock, it's doing stock and cash deals to acquire other companies. I shouldn't pan them for this without knowing what the details are. Still just trying to play devil's advocate here.
But to get to a more meaty part of why this might not be a good deal is this Slack technology doesn't really fit cleanly in any of Salesforce.com's ecosystem or any of its other offerings. It's a great piece of technology. We use it at The Fool. I think the company has got some nice long-term potential. It's just not really clear or easy to see how Salesforce fits this in, other than let it operate independently, which is a little bit different than it's done so far with other deals.
But on the plus side for Slack, Salesforce is a pretty nice partner to have when you're competing with Microsoft teams and some other collaboration work components out there.
So I'm going to stick with turkey. I just don't see quite the fit, but I can totally see Brian's idea why this is gravy, and again, I've been proven wrong so many times on Salesforce.com. They are good at acquiring companies and making them fit. How about you, Jason?
Jason Hall: I'm torn. I really am. I just kind of maybe want to say duck, right? Just get out of the way here. Sorry, I have to throw that bad turkey alternative of duck which I'm having tomorrow as an alternative Dad joke here.
I'm mixed, I really am. For the same reasons you are, Asit because it's tough to see exactly how this fits, right? But let's be honest, the folks over at Salesforce. They know their business really well. They know their customers really well and there is something to be said for their ability to leverage their relationships, in a way that maybe we just don't necessarily see. Because let's be frank, there's no doubt about it that a good customer relationship management application and a good internal workforce communication tool like Slack, they're are two different animals.
But the customer, the end customer that can benefit from them, can be absolutely identical. Here's the thing. You think about Salesforce and their goal is customer engagement; think about the way that they communicate with their clients or customers is very clean, and that they know what's going on, and anybody in the organization can be aware of this information and they make it seamless.
Slack does a lot of the same things when it comes to internal communications, groups and it's not as clunky as email for being able to do things quickly and on the fly, to get groups together, that sort of thing, in a really effective way. The products are very different. But I think there's clearly a use case for the users to benefit from it.
You can say a lot of the same things about Microsoft 's offerings. A lot of Microsoft offerings don't necessarily apply to every single part of their user base on an individual basis, but there's no doubt about it that their enterprise customers can absolutely benefit from all their offerings. Maybe this is how it grows to be the next Microsoft. We'll see.