Does Slack’s move to go public make it an acquisition target?

Slack announced last week that it is preparing for a public listing, capitalizing on huge growth in the six years since its launch. But could the popular workplace collaboration software company get acquired even before it hits the stock market?

“The fact that Slack is heading for a stock market listing indicates that its investors are looking for an exit/ROI opportunity, so it’s not beyond the realms of possibility that they’d consider an acquisition instead,” said Angela Ashenden, principal analyst at CCS Insight.

“It would be very appealing as an acquisition, particularly for a company that wants to compete more directly/effectively with Microsoft in the digital workplace,” she said.

“Slack is a good acquisition target for companies who want to win the collaboration market,” said Wayne Kurtzman, research director at IDC. “Winning that market is arguably winning the future digital workplace.”

It wouldn't be the first time like this occurred. There are a handful of examples in recent years of tech firm buy-outs taking place prior to a public listing (which is sometimes referred to as a “dual-track” process). Qualtrics was acquired last year by SAP for $8 billion a few days before its IPO at a valuation of approximately $5 billion, while Cisco acquired AppDynamics for $3.7 billion in 2017 as the latter was prepping for a public listing. And a similar situation occurred last year with PayPal's $2.2 billion acquisition of iZettle.

There is little to suggest that Slack has intentionally undertaken a dual-track process, where it actively courts would-be suitors while heading for a public listing. But it is no stranger to such speculation; the company’s success has led at times to tech chatter that Amazon, Google, Microsoft or perhaps even Apple would make suitable buyers.

Why buyers might want Slack

The company has certainly made itself an attractive target.

“Slack is in a unique position within the collaboration space,” said Raúl Castañón-Martínez, senior analyst at 451 Research. “Its unprecedented growth positions it as a competitor to tech giants such as Cisco, Facebook, Google and Microsoft.”

Slack now has more than 10 million daily active users, according to data released last month, with more than 85,000 teams paying for the app and 3 million individual paid users. Slack claimed annual revenues of $200 million in 2017.

The larger collaboration software market is growing, too. Total spending on team collaboration apps is set to reach $500 million this year, according to a recent estimate from Synergy Research Group – the result of a “hockey stick growth curve” in revenues.

“At the moment, Slack is still riding the wave, with continuing strong adoption growth, a solid product and development roadmap, and a customer base that loves the technology,” said Ashenden.

Slack launched its Enterprise Grid iteration two years ago, and has attracted more than 150 customers, including Capital One, Target and Condé Nast. The company is clearly aiming for large-scale deployments at corporate entities (with the recent addition of HIPAA certification another indication of that effort).

Nevertheless, cracking the enterprise market represents a sizeable challenge. “The question is whether it can leverage this [move] to position itself as an enterprise software vendor,” said Castañón-Martínez.

“Slack does not report statistics specifically for Enterprise Grid and even though there are indications that it is steadily advancing with its efforts to target large global organizations, expanding beyond organic adoption remains a key challenge,” he said.

“From this perspective, it’d make sense for Slack to consider an acquisition.”

Slack is getting stiff competition from Microsoft and its rival product, Teams, which has seen adoption rise swiftly. Teams is available as part of Office 365, which currently has 155 million active users globally. Because it's part of Office, Teams has ready-made access to the corporate world.

Nevertheless, Slack has continued to attract investors, despite the competitive team collaboration market; it attracted another round of investment ($427 million) during 2018, bringing its total to $1.2 billion and generating a valuation of $7.1 billion.

A last-minute buy-out? The candidates...

Though Slack may have rejected acquisition offers in 2016 and 2017 so it could focus on venture capital funding, there remains a limited number of big tech vendors with both the cash and the potential inclination to acquire the San Francisco-based company now.

“The transaction would carry a hefty price tag, making the list of potential suitors relatively small,” said Castañón-Martínez.

Microsoft

Microsoft is no stranger to acquiring rival sellers of communication and collaboration tools. It snapped up Skype for $8.5 billion in 2011 and enterprise social network application Yammer for $1.2 billion the following year. There is no doubt it could afford to acquire Slack, too.

Of course, there's a significant reason Microsoft might not be interested: the Redmond, Wash. company has already invested heavily in the creation of its own chat-based team collaboration application, Teams.

Former CEO Bill Gates and current CEO Satya Nadella are thought to have vetoed a multi-billion dollar move for Slack on the basis that Microsoft would be better off positioning Skype for business users. Teams – used by 329,000 organizations since its launch in 2017 – is now replacing Skype for Business as the main workplace communication tool in Microsoft’s portfolio.

Google

Microsoft represents a common adversary for both Google and Slack, and the two companies have worked to integrate their products tightly following the release of Teams.

However, Google launched its own version of a team collaboration app, Hangouts Chat, last year – filling a gap in its G Suite portfolio that Slack might otherwise have been able to plug.

“Google already has its own Slack alternative with Hangouts Chat, which is relatively new and unknown, but which already tightly integrates with the broader G Suite portfolio,” said Ashenden.

Amazon

Amazon Web Services has slowly begun to add business apps to its array of cloud infrastructure and analytics tools, launching the videoconferencing platform Chime and content collaboration tool WorkDocs. It is also one of the few large tech firms without a rival team collaboration app in its portfolio.

“Amazon/AWS is definitely looking to compete in the applications space, but has yet to fully articulate how it would achieve that – and its strategy is typically driven by cloud traffic, which is why it has products like Chime in the conferencing area, which drive cloud consumption,” said Ashenden.

“I’m not sure that Slack would be its most obvious starting point, beyond the fact that it would launch AWS into applications with a bang,” she said.

Apple

Would an acquisition make sense for Apple? It already has the basic components of a workplace collaboration and productivity suite in place, such as Group FaceTime for video calls and iWork apps that support collaborative document editing. Acquiring Slack would give APple immediate access to millions of users and a foothold in the enterprise.

That last point is noteworthy because Apple – while often seen as focused on the consumer market – has made numerous enterprise strides in recent years. It’s pushed into mobile management and teamed up with the likes of IBM and SAP.

Even so, an Apple buy appears to be a longshot, at best.

Would an acquisition make sense?

Facebook, Oracle and Salesforce are among the other big-hitters that could conceivably make such a bid.

It is not hard to see why vendors might, for the right price, be interested in acquiring Slack.

Slack is a rarity in that it sells its team collaboration tool as a standalone product rather than as one part of a suite of tools; rivals have argued that team chat is more a “feature” than a standalone product. That said, any acquisition and incorporation into a wider portfolio of tools could have advantages, even for vendors that already have their own chat apps.

But such a move could prove to be counter-productive. With Microsoft throwing its weight behind Teams, Slack is already under significant pressure and an acquisition could turn into a major distraction for customers.

“Any acquisition at this point would also be difficult for Slack – Microsoft is already pushing hard at the opportunity that Slack has exposed, and while it doesn’t have all the pieces fully lined up yet, the amount of investment going into the product makes it imperative that Slack doesn’t take its eye off the ball,” said Ashenden.

“An acquisition would inevitably cause uncertainty both for Slack’s customers and also for Slack as a company, and Microsoft – and Facebook, for that matter - would undoubtedly use that to its advantage.”

Furthermore, a large part of Slack’s appeal is its openness and ability to connect to a variety of third-party tools, which might not mesh well with plans from another vendor.

“Not all suitors are an ‘integrate-with-everything’ company, a direction that has made Slack successful,” said Kurtzman.