(Bloomberg) — Zoom Video Communications Inc., whose online conferencing services took off during the Covid-19 pandemic, agreed to let Five9 Inc. for $14.7 billion, using rising inventory to expand into an adjacent market that could bolster revenues as closes end.
The value of the all-share offer is $200.18 per share based on Friday’s closing price of Zoom’s common stock, compared to Five9’s $177.60 price on Friday, the companies said in a statement Sunday. The target company will become an operating unit of Zoom after the deal, which is subject to shareholder approval and is expected to close in the first half of 2022.
Zoom is looking for ways to continue growing as employees return to the office and students return to school, and the deal for Five9 will help it expand its offerings to its more lucrative corporate and corporate clients. Based in San Ramon, California, Five9 makes cloud-based software that uses artificial intelligence to help businesses answer and communicate with customers regardless of language, location or device.
The traditional call center, where a customer service representative responded by phone, has shifted to the Internet and is now often powered or augmented by chatbots. The market for these cloud-based customer call centers is estimated to be $24 billion, according to the companies. Together, Zoom and Five9 want to better compete with companies like Cisco Systems Inc., RingCentral Inc. and Amazon.com Inc..
Zoom Chief Executive Officer Eric Yuan called Five9 a “natural fit,” saying Five9 complements Zoom Phone, the company’s business that replaces the company’s traditional phone services with modern, cloud-based offerings. But some analysts thought it was an expensive attempt to seize growth that Zoom alone could not achieve. Zoom shares fell 4.3% in New York at 9:54 a.m. Monday, along with a wider sell-off in the market.
“This is an expensive deal that appears to be trying to build out the Zoom Phone offering,” said Neil Campling, an analyst at Mirabaud Securities. “Paying such a high price for an undifferentiated offering smacks of trying to move into neighboring markets as Zoom fatigue sets in.”
Five9’s clients include big names like Under Armour, Citrix, Athena Health and Lululemon, the website says. Rowan Trollope, CEO of Five9, becomes president of Zoom and continues to lead Five9 as an operating unit. Goldman Sachs advised Zoom and Qatalyst Partners advised Five9.
Zoom to Buy Five9 in All-Stock Deal at 13% Premium: M&A Snapshot
The joining of forces builds on Zoom and Five9’s existing co-selling relationship, and the decision was prompted by “huge” customer interest in having one integrated solution, Trollope said during a phone call with analysts Monday. “This is not an exit, this is just the beginning. We can absolutely come together to revolutionize this space.”
Trollope added that the deal for Five9 will allow the company to expand its reach globally by leveraging Zoom’s distribution network. “We had only just scratched the surface. This is a good accelerator for international growth.”
Zoom rose to prominence after the pandemic hit in early 2020 and became ubiquitous when people forced home by lockdowns used the service to connect remotely to work, school, friends and family. But investors this year have expressed concerns about whether that growth will continue as vaccinations ramp up and shutdowns end.
With pandemic lockdowns easing, the future of remote working has become a pressing demand and Zoom’s competitors have launched hybrid work functions in a race to meet the needs of businesses. Microsoft Corp. has unveiled design changes to its Teams platform to improve remote worker interactions during meetings. Google from Alphabet Inc. has unveiled updates to its Workspace productivity suite, including new tools for its Meet video conferencing system.
“As more workflows go digital, organizations are also no longer looking at contact center interactions with customers in a vacuum,” said Carolina Milanesi, president and principal analyst at Creative Strategies. “Being able to leverage the data on things like sales or when escalating an issue can be more seamless when done on one platform.”
She pointed out that Cisco has linked its contact center product with its Webex teleconferencing software, making it more of a one-stop shop. The Zoom deal gives the company similar strategies for integrating online chat and meeting products, she said, adding that Five9 Zoom will also provide access to artificial intelligence tools for analyzing contact center data.
The Five9 deal will help Zoom “grow their platform and join another market poised to move to the cloud as its digital transformation efforts take off,” Morgan Stanley analysts wrote.
Read more: Many companies see hybrid work continuing after pandemic
What Bloomberg Intelligence says
Unified communications and collaboration (UC&C) market share of total IT spend could remain stable at around 5% as businesses move to cloud-native platforms, and should remain so post-pandemic. That’s because organizations are rethinking their plans for digital technologies to include video, voice, and team collaboration tools as flexible or hybrid work models gain traction. UCaaS should continue to be a key growth engine for the $47 billion UC&C industry, with companies increasingly bundling video and collaboration solutions in the cloud to accommodate the secular shift in work culture.
– Amine Bensaid and Mandeep Singh, analysts
Click here for the survey.
Zoom is taking advantage of a stunning stock rally to fund the Five9 acquisition. The stock has roughly quintupled in 2020 and is up another 7.3% in the year so far, pushing its market value above $100 billion.
Five9 competes in a market for cloud services that help companies engage with customers. Amazon launched in 2017 with Amazon Connect. Other vendors include Talkdesk Inc. and Vonage Holdings Corp.
The acquisition is Zoom’s fourth since the start of the pandemic, according to data collected by Bloomberg. In June, Zoom announced that it had signed a deal to acquire German startup Karlsruhe Information Technology Solutions-kites GmbH, a maker of translation software.
In March, Zoom was part of a group that acquired a minority stake in software company Assembled Inc., the data shows. And in May 2020, it bought Keybase Financial Group Inc., which makes a secure message and file sharing service, on undisclosed terms to bolster its encryption technology.
Zoom was founded in 2011 by Yuan, the Chinese-born son of mining engineers who grew up in Shandong Province. Yuan idolized Microsoft founder Bill Gates and longed to work in Silicon Valley. After two years of unsuccessful attempts to get a US visa, he succeeded on his ninth attempt. In the beginning, he worked at the then startup Webex, the online meeting tool that was later taken over by Cisco. He rose through the ranks to become vice president of engineering, where he managed 800 employees, and unsuccessfully tried to get Cisco to develop a product that would work on both mobile phones and PCs. , which are often criticized for privacy violations. It was reprimanded for a policy that allowed it to share video chat content with ad-tracking companies, and it made untrue privacy protection claims using end-to-end encryption. In one of the most startling revelations, made by researchers at the University of Toronto, Zoom sometimes conducted meetings through servers in China, even if the participants were outside the country. So did the prospect of snooping by Chinese authorities. The company went on to address several issues, with Yuan apologizing publicly.
(Updates with comments from Five9 CEO and live shares. An earlier version of this story corrected the timing of rival moves.Up)
More stories like this are available on bloomberg.com
Subscribe now to stay ahead of the game with the most trusted business news source.
©2020 Bloomberg LP