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Zoom! That's the sounds of comms firm chomping down on loss-making Five9 in transaction valued at $14.7bn
Pandemic smiles on Unified-Comms-as-a-Service biz
Zoom is making a full-blown entry into the cloudy Unified Comms business by hoovering up Contact-Centre-as-a-Service (CCaaS) outfit Five9 in an all-share transaction valued at a whopping $14.7bn.
Five9 produces cloud-based contact centre software: a suite of applications built to manage customer interactions across multiple channels. The company is a relative minnow, but – according to analysts, at least – the deal has "strategic merit" for Zoom by making it less dependent on the crowded videoconferencing market.
The purchase would see Zoom combining its broader comms platform with Five9's CCaaS product. Zoom also mentioned in its press materials the opportunity for both companies to cross-sell to their existing clients.
Under the terms of the sale, Five9 shareholders will receive 0.5533 shares of Class A common stock of Zoom Video Communications for each Five9 share. "This represents a per share price for Five9 common stock of $200.28 and an implied transaction value of approximately $14.7bn," said Zoom.
The boards at both Zoom and Five9 approved the transaction, which is expected to close in the first half of calendar 2022. That is, of course, assuming Five9 shareholders give the deal their approval, and that regulatory authorities also give the thumbs-up.
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In calendar 2020, Five9 reported turnover of $435m, up 33 per cent from the prior year. It recorded a loss from operations of $12.3m – more than double the loss of 2019 – and a net loss of $43m versus $8.96m. The business forecast sales of up to $551.5m for this year and a net loss of up to $63.4m, with the bottom line hit by rising investments in R&D, go-to-market models, and public cloud.
The pandemic has smiled on Zoom, whose videoconferencing service exploded after people were forced to work, learn, and play from their home to comply with government lockdowns. The company saw sales jump to $2.651bn in the year ended 31 January 2021 versus just $622.658m in the year before. It made an operating profit of $659.8m compared to just $12.7m.
Cashing in on its relatively newfound popularity in the COVID-19 era, Zoom raised $1.75bn in a stock offering in January. It subsequently bought Kites GmbH last month, a company that develops real-time machine learning translation services.
Philip Carse, chief analyst at Megabuyte, quipped that today's buy price was a "shock, horror" as "one very large company uses its very highly rated shares to buy another company."
He pointed to the revenue multiple Zoom is paying, adding: "However, there is a clear strategic merit," as demonstrated by the financial results being flashed by Unified Comms players such as Ring Central and 8x8.
"Contact centre is a key growth driver, and Five9 will therefore bolster Zoom's UCaaS ambitions and help make it less dependent on its videoconferencing business, where it faces the might of Microsoft Teams, Google and Cisco Webex among others." ®