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Zoom Video’s $ 15 billion Acquisition of Call Center Software Company Five9 is off. Opposition to shareholders and regulatory scrutiny have made the deal difficult from the start. Rising bond yields and backward appreciation of technology stocks are cutting the cord.
This is a blow to Zoom’s efforts to expand beyond video calls and keep growing as workers return to the office and students return to school. The prospect of selling cross-selling to corporate clients was enticing.
Still, it makes sense to sit up. Five9, which makes software that enables businesses to provide customer service via email, chat, sms and phones, was expensive. Despite 20 years of business, the business is losing out. Under the terms of the all-share deal, Zoom would have paid approximately 26 times Five9’s advance sales. Rival Twilio, which earned four times more revenue than Five9 last year, trades at a lower multiple.
For Five9 shareholders, a drop in Zoom’s market value of nearly 30 percent since the deal was announced in July has made the bond unpleasant. They are right to follow the recommendation of the proxy advisory firm Institutional Shareholder Services and reject it. The deal originally implied a 13 percent premium to Five9’s share price at the time. Zoom’s subsequent drop in market value means that Five9 would have sold itself at a 15% discount. Zoom’s connections with China also meant that the deal explored national security.
Zoom could have tried to save the deal by sweetening its offer. Increasing the share ratio was one option. Another cash component was added. Zoom has about $ 5 billion in cash on its debt-free balance sheet. But to choose it would probably have caused a revolt among Zoom’s own shareholders.
Walking away is the most logical option on both sides. The division is friendly and does not affect the two partnerships’ existing partnerships. Analysts still expect Zoom to grow to its peak in the next three years. It has room to consider a more economical move to adjacent markets.