1

Juan Camilo ParraSergio Rodríguez

Carlos VegaSantiago Zafra

Juan Pablo Quiñones

Salesforce Acquisition ofSlack Technologies

20/02/2021

Table of Contents

Industry Overview

Company Overview–Salesforce

Company Overview - Slack

Financial Analysis

Multiples Valuation

Cost of Capital

Financial Forecast

DCF Valuation

Conclusions & Recommendations

3

5

7

10

13

15

17

21

23

2

Industry Overview

3

Industry Overview: Cloud Computing

Macroeconomic Trends

● COVID-19 lock-downs impact the way people work and enhance a digital transformation trend.

● Massive investments in cloud computing infrastructure.

● Business are engaging their operations to a cloud software and technology integration, aiming for less expensive and more secure data management.

● The retail and consumer goods vertical is one ofthe fastest-growing verticals with respect to theadoption of emerging and innovative technologies.

● The Cloud Messaging Industry’s growth is drivenmainly by enterprise migration to the cloud and thenecessity to improve clear communication amongthe company.

4

90% of companies are

on cloud2

Cloud computing market size from

371.4 to 832.1 USD Bn by 20251

60% of workloads are

on a hosted cloud service by

20192

1. 𝑅𝑒𝑠𝑒𝑎𝑟𝑐ℎ 𝑎𝑛𝑑 𝑀𝑎𝑟𝑘𝑒𝑡𝑠. 2020 .𝐶𝑙𝑜𝑢𝑑 𝐶𝑜𝑚𝑝𝑢𝑡𝑖𝑛𝑔 𝑀𝑎𝑟𝑘𝑒𝑡.

2. 451 𝑅𝑒𝑠𝑒𝑎𝑟𝑐ℎ: 69% 𝑜𝑓 𝑒𝑛𝑡𝑒𝑟𝑝𝑟𝑖𝑠𝑒𝑠 𝑤𝑖𝑙𝑙 ℎ𝑎𝑣𝑒 𝑚𝑢𝑙𝑡𝑖 − 𝑐𝑙𝑜𝑢𝑑 𝑒𝑛𝑣𝑖𝑟𝑜𝑛𝑚𝑒𝑛𝑡𝑠 𝑏𝑦 2019, 𝑏𝑢𝑡 𝑔𝑟𝑒𝑎𝑡𝑒𝑟 𝑐ℎ𝑜𝑖𝑐𝑒 𝑏𝑟𝑖𝑛𝑔𝑠 𝑒𝑥𝑐𝑒𝑠𝑠𝑖𝑣𝑒 𝑐𝑜𝑚𝑝𝑙𝑒𝑥𝑖𝑡𝑦.

Key Industry Numbers

Company Overview - Salesforce

5

● Business Model: Customer Relationship Managementplatform, that connects companies and clients formarketing, sales, commerce and services purposes.

● Competition: Microsoft Dynamics 365 for Sales, Sugar Sell,Insightly, Sap Sales Cloud, etc.

● Active Users: +150,000 companies worldwide.

● CEO: Marc Benioff since 2001.

Company Highlights

Company Overview – Salesforce

Relevant Data

6

Data: Oct-2020 (mm USD)Market cap $227,290 Revenue $13,282D/E 15.44

Current: $254.23 High: $281.25 Low: $5.29

Stock Price Behavior

EV/ Revenues 11.01x

EV/ EBITDA 110.46x

254.23

$0

$50

$100

$150

$200

$250

$300

Oct-

05

Oct-

06

Oct-

07

Oct-

08

Oct-

09

Oct-

10

Oct-

11

Oct-

12

Oct-

13

Oct-

14

Oct-

15

Oct-

16

Oct-

17

Oct-

18

Oct-

19

Oct-

20

Company Overview - Slack

7

● Business Model: Company that aims to connect teams,unify their systems and enhance communication facilitiesthat drive businesses forward.

● Competition: Microsoft Teams, Cloudflare, Twilio, Zoom, etc.

● Active Users: 142,000 paid customers, 1,080 paid users >$100,000 and 710,000 non-paid users.

● CEO: Stewart Butterfield since 2013.

Company Highlights

Company Overview – Slack Technologies

Relevant Data

8

Data: Oct-2020 (mm USD)

Market cap $24,919Revenue $400.6

% YoY Revenue 39%

Current: $25.58 High: $39.90 Low: $17.04

Stock Price Behavior

Free users are

funneled, and

direct sales

convert them

into enterprise

consumers.

Direct Sales

Freemium Model

Viral Growth

EV/ Revenues 29.25xEV/ EBITDA -102.22x

25.58

0

10

20

30

40

50

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

Fe

b-2

0

Ma

r-2

0

Ap

r-20

Ma

y-2

0

Jun

-20

Jul-

20

Au

g-2

0

Se

p-2

0

Oct-

20

Company Milestones – Slack Technologies

9

Acronym for

“Searchable Log of

All Communication

and Knowledge”

2015

2019

Went public with a direct

offering ($26.0 p/s)

20182017

2016

2013

2014

Public launch

Slack worth $3B

and reached

200,000 paid

customers

Start blitzcaling

phase

Partnership with IBM

and Google

Ranked #1 in Forbes’

Cloud 100 list

Slack announced the

acquisition

of Missions, Stride

and HipChat

Financial Analysis

10

Financial Analysis

11

74.28%

18.89% 19.95%

86.13%

-28.30% -27.12%

72.19%

26.14%19.99%

Gross Margin EBITDA Margin Net Profit Margin

Salesforce Slack Industry

Profitability Ratios Leverage Ratios

0.16

3.08

0.73

-13.98

0.27

2.34

D/E DEBT/EBITDA

Salesforce Slack Industry

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

-

50,000

100,000

150,000

200,000

250,000

Thousand U

SD

Revenue Growth

Financial Analysis

12

Historical Revenues

CQGR 10.2%

Historical Users

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

Total Customers Growth Rate

Avg. Growth Rate CQGR 6.9%Avg. Growth Rate

Multiples Approach

13

14

Multiples Approach

Minimum 3.9xMedian 9.7xAverage 15.9xMaximum 45.8x

Slack Sales (USD mn) $ 833.915

Equity Valuation Field

Multiple Used (EV/Revenues)

Multiples Approach

36,614 USD Mn

3,715 USD Mn

8,535 USD Mn

13,746 USD Mn

Comparable CompaniesSector Cloud Computing

Cost of Capital

15

Cost of Capital

Cost of EquityInputs

Ke = 7.31%

Equity Risk Premium 4.97%

Risk Free Rate 0.68%

Beta 1.33

16

Unlevered Beta 0.87

D/E 0.73

Cost of DebtInputs

Corporate Tax 27%Kd (Pre-Tax) 0.92%

WACC

WACC = 4.51%

ERP: Damodaran

Rf: US Treasury 10 years T-Bond

Unlevered Beta: Sector Software & Technology Damodaran

Kd: Interest Rate Convertible Notes

Financial Forecast

17

Sales & Users

18

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

2018Q2

2019Q2

2020Q2

2021Q2 E

2022Q2 E

2023Q2 E

2024Q2 E

2025Q2 E

Paid Customers Paid Customers > $100,000

Non-paid Users

Users Forecast

Paid Customers growth

Paid Customers > $100,000 growth

Non-paid Users growth

7.7%

8.5%

7.7%

Price Forecast

Implicit Average Revenue per User (ARPU) grow at the inflation rate.

Revenues (Thousand USD)

902,090 1,263,508

1,761,068

2,454,815

3,425,151

4,780,374

2020 2021 2022 2023 2024 2025

Growth Rates

COGS and OPEX

19

COGS Forecast Gross Profit vs. EBIT

Gross Margin Historical 3 years Average 86%

*Including 2020 Q4 Forecast

Expense margins are reduced gradually accordingto their strategic plan.

-

100,000

200,000

300,000

400,000

500,000

2018Q1

2019Q1

2020Q1

2021Q1

2022Q1

2023Q1

2024Q1

2025Q1

US

D T

housands

R&D S&M G&A COGS

$780,773

1,083,350

1,514,637

2,109,382

2,942,572

4,108,952

(248,389) (246,082) (211,641) (117,438)

88,171

479,430

2020* 2021 2022 2023 2024 2025

Gross Profit EBITDA

OPEX Forecast

CAPEX and Depreciation

20

CAPEX Forecast

Forecasted as an average percentage of the sales.

Supports users´ growth and investments required to achieve the sales target.

PP&E

Intangibles

Strategic Investments

3.7%

0.4%

2.3%

Depreciation Forecast

D&A expense as an average percentage of PP&E. 6.8%

CAPEX and D&A Forecast

-

50,000

100,000

150,000

200,000

250,000

300,000

2020 Q4 2021 2022 2023 2024 2025

Thousand U

SD

CAPEX D&A

DCF Valuation

21

Discounted Cash Flow Valuation

22

DCF Summary

Enterprise Value $27,222Terminal Value $26,439

Stock Price (USD) $50.88

Net Debt -$459.04

Equity Value $27,681

Data: mm USD

Long Term Growth Rate (g) 2.2%

Free Cash Flow to the Firm

2020* 2021 2022 2023 2024 2025EBITDA (248.389) (246.082) (211.641) (117.438) 88.171 479.430 - Delta WK 6.492 (167.178) (237.785) (336.027) (472.565) (663.956)- CAPEX 42.120 77.154 107.536 149.897 209.147 291.899 - Taxes - - - - 12.799 107.626 FCFF (297.001) (156.058) (81.392) 68.692 338.790 743.861 *Including 2020 Q1 – 2020 Q3 Real

Conclusions & Recommendations

23

SWOT

Strategic Overview and Opportunities

Valuation Summary

24

Enterprise Value $27,222EV / Revenues 32.21 x

Stock Price (USD) $50.88WEAKNESSESReduction in Salesforce profitability due to Slack negative net profit margin. Slack revenue is under the average of competitors.

W

THREATSHighly changing industry due to dependency on tech development. Competitive Sector. T

OPPORTUNITIESReach new markets and customer segments. Increase brand perception. O

STRENGTHSIncrease revenues and acquire new paid customers. Boost in communication platform business. Possible synergies.

SEquity Value $27.681

Data: mm USD

Conclusions & Sensitivity Analysis

25

The transaction is an accretive horizontal

merger given the possible synergies and

growth opportunities that could possibly

translate into greater EPS after the merger.

The value of Slack is 27.68 bn USD.

According to the sensitivity analysis, the

principal driver of the model is the customers

growth rate.

The acquisition of Slack technologies would

be considered a threat to big CRM

companies, Salesforce will attain a higher

market share and will gain the power to

influence prices.

1

2

3

Sensitivity Analysis

Paid Customers Quarterly Growth Rate

27.681 2,50% 5,00% 7,70% 10,00% 12,5% 15,0%

WA

CC

4,00% 22.051 26.569 35.976 50.313 76.769 121.423

4,51% 16.967 20.445 27.681 38.702 59.029 93.321

5,00% 13.789 16.618 22.497 31.445 47.940 75.755

7,50% 6.826 8.228 11.128 15.527 23.613 37.216

10,00% 4.372 5.268 7.113 9.901 15.012 23.589

15,00% 2.409 2.897 3.889 5.379 8.092 12.622

20,00% 1.605 1.921 2.557 3.504 5.218 8.066

Growth Rate (g)

27.681 1,50% 1,75% 2,20% 2,50% 3,0% 3,5%

WA

CC

4,00% 26.085 28.911 35.976 43.041 64.236 127.822

4,51% 21.387 23.268 27.681 31.723 42.037 62.596

5,00% 18.126 19.471 22.497 25.120 31.240 41.439

7,50% 9.902 10.306 11.128 11.759 12.996 14.544

10,00% 6.576 6.757 7.113 7.373 7.857 8.415

15,00% 3.717 3.777 3.889 3.969 4.111 4.265

20,00% 2.481 2.507 2.557 2.592 2.652 2.716