Analysis: What Went Wrong with Zoom-Five9 Merger Agreement
Five9 comes out looking stronger than Zoom in the aftermath.
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A mistake on Zoom’s part may have been tying the deal to its stock price rather than a specific dollar amount, Jon Arnold said. Zoom’s stock has dropped over 25% since the merger was announced.
Zoom was possibly overconfident that its share price would grow and stay high, but there was no guarantee and “conditions are out of your control,” he said.
“This is as far as I know the largest acquisition move that Zoom has made,” Arnold said. “When a company that has grown that big that fast makes a move like that, a lot is at stake. If they pull it off … it’s a good look. If they don’t execute, stumble as it has, that raises risk. It was the first chance to make a big move in the market and it didn’t succeed. That might cause some people to rethink Zoom’s position in the market.”
Video conferencing has hit its peak, so Zoom needs to find a second or third act to keep growing, he said.
On the other hand, Five9 is looking good, Arnold said. It’s behind only Genesys as the largest and most successful pureplay player in cloud contact center.
“It’s not hugely profitable, but they’re doing everything right,” he said. “So they have a great runway ahead and they can just continue on this path.”
Five9 is in a “position of strength,” Arnold said.
“They have all the cards; they’re not needing to sell and will continue to grow,” he said. “This doesn’t prevent them from achieving success.”
So what’s next for Zoom? Does it look for another acquisition target? Arnold said Talkdesk is probably the next closes thing to Five9. The cloud contact center provider recently raised $230 million in new series D funding.
“Talkdesk is another strong player so would that be Zoom’s next best, or should Zoom pursue [its] own internal path,” he said. “Instead of spending money on Five9, maybe build their own.”
Talkdesk this week announced Talkdesk Phone, a contact center-based business phone system. That signals Talkdesk moving in a different direction, and therefore it might not be that attractive to Zoom, Arnold said.
Brandon Knight, who leads Telarus‘ contact center practice, said he’s shocked by the merger termination.
“I had heard there were rumblings and some roadblocks with the international regulations, etc., but it all seemed like it would be figured out,” he said. “Most just thought it would take longer. But for the offer to be rejected by the stakeholders makes it seem like they didn’t see enough value in the acquisition, which is an interesting perspective since Five9 has made no secret of its desire to partner with a UC player to more effectively compete with the all-in-one solutions. And Zoom has openly talked about moving upstream in the communication industry.”
“What’s interesting about this is that although the unified communications (UC) market has the larger players financially, the industry still seems to prefer the more complex contact center (CC) and customer relationship management (CRM) companies as the acquirer versus the acquired,” Knight said. “Both markets have extremely successful players in their own right, but there is some underlying concern about the impact a UC mentality company would have in the CC market, since from a sales and operations perspective they have to do very different things to be successful. With that said, I don’t think either party gives up on the original plan because it makes sense for both. I just think they regroup and then individually set out to find another more suitable partner.”
Jay McBain is Forrester’s principal analyst of channel partnerships and alliances. He said news of national security concerns associated with the merger could have impacted the merger’s chances for success.
“With the external reporting on Sept. 21 that the Justice Department was getting involved over China ties, this deal’s chances of closure significantly reduced,” he said.
Five9 has operations in Russia, while Zoom has research and development staff in China.
Jay McBain is Forrester’s principal analyst of channel partnerships and alliances. He said news of national security concerns associated with the merger could have impacted the merger’s chances for success.
“With the external reporting on Sept. 21 that the Justice Department was getting involved over China ties, this deal’s chances of closure significantly reduced,” he said.
Five9 has operations in Russia, while Zoom has research and development staff in China.
With Zoom and Five9 terminating their merger agreement, the companies now face differing market perceptions going forward.
That’s according to Jon Arnold, principal of J Arnold & Associates. We asked Arnold and other industry experts for their take on why this deal imploded.
In a surprise move late Thursday, the companies announced they mutually agreed to terminate the deal.
The announcement came after Five9’s shareholders rejected the merger at a special meeting. Five9 will continue to operate as a standalone publicly traded company.
In July, Zoom and Five9 disclosed the $14.7 billion transaction. Through the acquisition, Zoom could extend its global communications network with a cloud-based contact center as a service.
Zoom has since announced its Zoom Video Engagement Center, a cloud-based contact center solution. It will launch in early 2022.
Keep up with the latest channel-impacting mergers and acquisitions in our M&A roundup. |
Arnold said it’s important to remember that Five9 rejected Zoom’s acquisition offer.
J Arnold & Associates’ Jon Arnold
“The fact that Five9 turned down [Zoom] tells you how much they believe in their future,” he said. “They’re in a position of strength. If somebody wants to buy them in the future, it will cost a lot more because they turned down Zoom. Zoom needs them more than Five9 needs Zoom.”
Other providers have gained new capabilities through partnerships, Arnold said. However, as with Zoom and RingCentral, sometimes these partnerships don’t work out.
“That’s why Zoom wanted to buy,” he said.
While Five9 emerges looking strong, the failed merger doesn’t leave Zoom unscathed, Arnold said.
Our slideshow above has more analysis of the terminated merger.
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