Zoom Acquisition of Five9 Under National Security Review

Zoom remains confident its acquisition of Five9 will clear all regulatory hurdles. That’s despite a U.S. government committee’s review based on national security concerns.

In July, Zoom and Five9 disclosed the $14.7 billion transaction. Through the acquisition, Zoom can extend its global communications network with a cloud-based contact center as a service.

Zoom should complete the acquisition in the first half of 2022. After the deal closes, Five9 will operate as a business unit within Zoom and remain under the leadership of Five9 CEO Rowan Trollope.

David Plotinsky is acting chief of the foreign investment review section of the U.S. Department of Justice’s national security division. He asked the Federal Communications Commission (FCC) to refer the Zoom-Five9 case to the committee for the assessment of foreign participation in the U.S. telecommunications service sector. Attorney General Merrick Garland is chair of the committee.

Presence in Russia and China

Zoom is based in the United States, and founder and CEO Eric Yuan, a native of China, is a U.S. citizen. Five9 has operations in Russia, while Zoom has research and development staff in China.

In his Aug. 27 letter, Plotinsky requested the review of the Zoom-Five9 acquisition “to determine whether this application poses a risk to the national security or law enforcement interests of the United States.”

“[The Justice Department] believes that such risk may be raised by the foreign participation (including the foreign relationships and ownership) associated with the application, and a review by the committee is necessary to assess and make an appropriate recommendation as to how the [FCC] should adjudicate this application,” he said. “As with any application that is referred to the committee, [the justice department] further requests that the commission defer action on this application until the committee has concluded its review.”

Cooperating with Regulatory Agencies

Zoom sent us the following statement:

“The Five9 acquisition is subject to certain telecom regulatory approvals. We have made filings with the various applicable regulatory agencies, and these approval processes are proceeding as expected. We continue to anticipate receiving the required regulatory approvals to close the transaction in the first half of 2022.”

Five9 isn’t commenting on the review.

This isn’t the first potential roadblock to the deal. Earlier this month, Scott Berg, managing director and senior research analyst at Needham & Co., said Zoom’s offer to acquire Five9 is “fundamentally flawed” and Five9’s shareholders should reject it.

“We believe [Five9] shareholders will vote down [the] current price, requiring Zoom to raise [its] bid to complete [the] transaction,” he said.