Salesforce on Tuesday capped cloud computing’s 2020 work-from-home boom with an announcement that it would pay $27.7bn for workplace chat app Slack, setting up a battle with Microsoft for pole position in one of the hottest corners of the tech market.

The cash-and-stock deal is the largest in the soaring cloud software industry, beating Microsoft’s $26.2bn purchase of LinkedIn four years ago.

Investors in Slack would receive $26.79 and 0.0776 shares of Salesforce common stock for per share, the companies said in their announcement of the deal.

The combination brings together Slack’s chat service, which reached more than 12m users earlier this year, with Salesforce’s wider range of sales, marketing and other business software. The union would provide an easier way for workers to tap into Salesforce’s software and make it a stronger rival to Microsoft, said Alex Zukin, analyst at RBC Capital Markets. “Ultimately, it’s about Microsoft — they have it all,” he said.

The deal also highlights the increasing consolidation that has hit the cloud software sector, which revolves around digital services, often paid for through regular subscriptions, rather than the sale of software for customers to install on their own computers.

Between them, Microsoft and Salesforce have now sealed six of the nine largest cloud software acquisitions, putting them in the lead as access to digital services becomes a more common way for companies to buy technology. SAP and Oracle have also turned to cloud dealmaking to speed up the transformation of their traditional software businesses and keep up with the new buying habits.

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“The burden of proof is squarely on their shoulders to convince investors, when they said they wouldn’t be doing anything like this for a while,” said Mr Zukin. But he and other software analysts have welcomed the strategic rationale for the deal, since it gives Marc Benioff, chief executive of Salesforce, a new weapon against Microsoft while opening the way to selling Slack’s service through a much larger salesforce.

Slack had come to look vulnerable after two reporting two quarters of disappointing results and missing out on the 2020 cloud software boom. Other companies in the sector have seen their shares surge as customers were forced to invest more heavily in digital services to maintain their operations and keep workers connected after the pandemic struck.

Before news of the potential deal broke last week, Slack’s shares were more than 20 per cent below the level reached on the first day of trading after the company went public last year. By contrast, the BVP index of leading cloud stocks has risen 88 per cent since the start of this year, with Salesforce up 45 per cent.

Via Financial Times