Published on Mar 03, 2021
Salesforce (CRM) is said to remain confident of avoiding a UK Competition and Markets Authority probe into its planned $27.7 billion acquisition of messaging platform Slack (WORK) despite the U.S. DOJ’s recent decision to open an in-depth, second request review into the transaction.
The San Francisco-based customer relationship management (CRM) company is said to have engaged closely with the CMA and told the UK watchdog that it shouldn’t review the deal because it doesn’t meet the test for establishing the enforcer’s jurisdiction, and even if it did, there’s no reason to suspect the merger would harm competition.
Successfully bypassing a CMA investigation would be a further boon for Salesforce after the company earlier this week secured quick-fire competition clearances in Germany and Austria for the Slack tie-up.
The CMA is viewed as much more aggressive than its continental and U.S. counterparts. In attempting to assuage the authority’s potential concerns, Salesforce can argue Slack has only a minor presence in the UK, deriving most of its revenue across the pond. Salesforce, meanwhile, also controls a relatively small share of the UK CRM software market.
The CMA recognized that dynamic in a 2019 decision approving Salesforce’s acquisition of Tableau Software. There, the authority estimated that Salesforce commanded just a 10-20% share of supply in UK’s CRM market—less than its 20-30% share on a worldwide basis.
Those market shares could mean that the deal would create less risk of post-merger foreclosure in the UK than it might in the U.S.
That theory of harm has drawn scrutiny from DOJ, where agency staff attorneys in the days leading up to the February 16 second request evaluated the merging parties’ respective market positions, and whether the deal would give Salesforce the ability and incentive to degrade competitors’ integrations with Slack in order to benefit its own market-leading CRM suite.
Some third parties have complained to DOJ that the transaction could have exactly that effect.
But even if the CMA is considering calling in the merger—the authority’s jurisdictional reach is notorious—the merging parties’ relatively limited presence in the UK make establishing a viable theory of foreclosure harm all the more challenging.
Yet an extended U.S. review does give the UK watchdog more time to decide whether to formally investigate the deal. In several recent transactions, the CMA only got involved some months after U.S. officials issued second requests.
During recent failed attempts by Illumina to buy Pacific Biosciences and Sabre to take over Farelogix, as well as Stryker’s successful acquisition of Wright Medical, up to four-and-a-half months elapsed between the U.S. action and the start of a CMA merger inquiry.
Non-suspensory. As a non-suspensory authority, the CMA doesn’t have to approve a deal for it to proceed—UK law allows the watchdog to intervene up to four months after a merger has closed.
To be sure, novel theories of harm have drawn the CMA’s attention in recent times, meaning Salesforce can’t be totally comfortable about the lack of UK involvement.
In addition to foreclosure, Salesforce’s takeover of Slack could draw questions about the possible elimination of a potential competitor. The buyer does have two messaging platforms—Chatter and Quip—that appear somewhat similar to Slack, though Salesforce would push back on any suggestion that either are the equivalent of Slack.
That said, in the run-up to Salesforce’s discussions with Slack, in March 2020, Slack indicated an interest in buying Quip from Salesforce. Though negotiations between the parties never materialized, Salesforce’s interest in acquiring Slack emerged in August 2020.
Premium. Another feature of the deal that could attract the attention of UK competition officials is the high price Salesforce is paying for Slack. The buyer’s first approach for Slack came in at $35 per share, with multiple adjustments resulting in a final $47 per share price. That offer represented a 55% premium on Slack’s share price prior to the disclosure of talks between the companies.
Slack posted total revenue of $630 million in its most recent financial year. The $27.7 billion deal value is a staggering 44 times that revenue figure. The lack of any serious rival bidder could raise some eyebrows among competition officials.
The CMA’s Remedies, Business and Financial Analysis (RBFA) unit digs into the motivations behind proposed mergers. In addition to uncovering possible anticompetitive motives behind high prices, the unit can also find justification for lofty multiples paid by acquirers, as it did in 2018 when the CMA approved the PayPal/iZettle transaction.
Salesforce disclosed receipt of the DOJ second request on February 16, stating that it continued to anticipate that the deal would close before July 31.
Salesforce, Slack and CMA spokespeople didn’t respond to requests for comment.