- GeneralM&A
- September 19, 2021
- 4 minutes read
Markets: Zoom’s $15B Five9 Deal Hits A Hurdle
This July, Zoom (NASDAQ: ZM), the famous video-conferencing software company whose fortunes escalated during the pandemic, inked its first big…
This July, Zoom (NASDAQ: ZM), the famous video-conferencing software company whose fortunes escalated during the pandemic, inked its first big acquisition with Five9 (NASDAQ: FIVN), a company that makes software to manage contact and customer support operations online.
The agreement was for Zoom to buy Five9 for $14.7bn paid fully with the acquirer’s stock, but now that deal appears to be hitting a hurdle;
- Since the acquisition agreement, Zoom’s stock has fallen by 20% and shrunk the value of its offer. In fact, Five9’s shares now appear to be trading at a value above the value of Zoom’s offer with the 20% drop taken into account, casting the deal in doubt.
Unsurprisingly, an influential advisory firm known as Institutional Shareholder Services (ISS) is cautioning against the deal and advising Five9 shareholders to reject it. The firm presses that Five9 shareholders would be exchanging their stock for “a more volatile stock whose growth prospects have become less compelling as society inches towards a post-pandemic environment.”;
- Given the circumstances of Zoom’s 20% drop and the subsequent drop of the acquisition value from $14.7bn now to about $11.8bn, ISS has a strong point to make. Whether Five9 shareholders would accept the firm’s advice is another case.
With the deal hitting a hurdle, one remedy that Zoom could make is including a significant cash component to the offer rather than going all with stock. It could also bump up the price still with stock if it’s keen on acquiring it that way;
- It’s clear that buying Five9 is really important to Zoom because as it is, Zoom needs to diversify its business in order to prove its resilience to shareholders, especially as the post-pandemic world is eating into its video-conferencing fortunes and also as it’s facing intense competition in the arena from bigger rivals like Google and Microsoft.
With Five9’s current value now slightly above that of Zoom’s offer with the 20% drop taken into account, it seems likely that Five9 shareholders won’t accept the deal without adjustments. It’s now up to Zoom’s management led by CEO Eric Yuan to decide on the adjustments.
