The News: July 18 (Reuters) – Teleconferencing services provider Zoom Video Communications Inc (ZM.O) has struck a deal to buy cloud software provider Five9 Inc (FIVN.O) in an all-stock transaction valued at about $14.7 billion, the company said on Sunday. Read the full news story on Reuters.
Analyst Take: Prospective and alleged deals sure seem to like weekends these days. The week finished with rumors of Intel’s $30 billion deal to acquire GlobalFoundries. Sunday brought Zoom’s largest-ever acquisition announcement-grabbing cloud contact center leader, Five9, to instantly diversify and expand its business.
Deal Details: Nearly $15 Billion and ~$200 a Share for Five9
The deal effectively puts Five9 common shares at $200.00 and is based upon the company’s fiscal 2020 revenues of $435 million at a multiple of about 34x. This certainly represents an aggressive but not egregious deal for the company that will enable Zoom to substantially extend its platform and take charge of Five9’s momentum that included growth of over 30% in its most recent year.
The Market Has Been Waiting For Zoom’s Next Move
More than a dozen journalists have asked me about how Zoom would continue its growth after the incredible growth in 2020 fueled by the Covid-19 pandemic. With YoY growth for Zoom that usurped 300% for the year, the market started to raise eyebrows about how such growth could continue, especially as the pandemic subsided and employees return to work and travel started to normalize.
Zoom CEO Eric Yuan has been outspoken about the company’s focus on making the platform more extensible. We hear from the likes of Satya Nadella and Marc Benioff about their vision for their collaboration tools to become the epicenter of the workforce. Zoom, while certainly not being able to match the vertical and horizontal stacks of Microsoft and Salesforce, has been aggressively making integrations with a vast set of productivity, business applications, CX, and other key software stacks to try and shift any stigma that Zoom is just a video meeting app to something much greater.
Other efforts to make the tool more desirable have come in the form of improved events and webinar tools, which will continue to see demand rise as events will remain hybrid. Zoom also did an excellent job in late 2020 and 2021 to shore up several security vulnerabilities that plagued the company in the early growth that followed the pandemic-induced shutdowns. These security hiccups had been a concern for me but have largely been addressed in the companies updates and investments.
The contact center is an incredibly logical place to start a substantial horizontal expansion of the Zoom platform. Partially because of the somewhat archaic technologies from companies like Genesys, where many of its cloud capabilities are built on top of legacy premise-based offerings. The acquisition also offers clear opportunities to attach and extend into analytics, data, and customer experience. Deepening partnerships and integrations with companies like Twilio and Zendesk look promising at this juncture. I can also see hardware and UCaaS partnerships like those held with Mitel and Poly to benefit here as well.
Overall Impressions on Zoom Acquiring Five9
This deal is straightforward. Two companies, both born on cloud, addressing a specific business need coming together to deliver meaningful horizontal scale and make both solutions more extensible to their respective existing customers.
I like this deal. The multiple certainly combines an optimism of synergy with an aggressive but reasonable multiple. And with two CEOs in Yuan and Trollope that I believe are clear in their strategies and executing effectively, the unified company sets the right direction for what Zoom will become as it continues to expand the platform to address the future of collaboration.
Futurum Research provides industry research and analysis. These columns are for educational purposes only and should not be considered in any way investment advice. Neither the Author or Futurum Research holds any positions in any companies mentioned in this article.