By Akhil Vajjhala and Siddharth Tripurani (NYU), and Anish Umasuthan (McGill)
Photo: Path Digital (Unsplash)
Overview of the deal
Acquirer: Zendesk
Target: Momentive
Implied Equity Value: $4 billion
Total Transaction Size: $4 billion
Announced date: October 28th, 2021
Target advisor: Goldman Sachs & Co. LLC
Zendesk, Inc. (NYSE: ZEN) will acquire Momentive Global Inc. (Nasdaq: MNTV) for $4 billion in a deal announced October 28. Pursuant to the agreement, Momentive stockholders will receive 0.255 shares of Zendesk for each share of Momentive. Subsequently, Zendesk stockholders will own approximately 78% of the combined company, while Momentive stockholders will own approximately 22%.
Zendesk said it anticipates the acquisition will be growth accretive in the first full operating year and will accelerate Zendesk’s revenue to 3.4 billion in 2024, one year sooner than its prior goal. Zendesk will also use the savings from the transaction to support growth opportunities. According to the filing, the transaction will qualify as a tax-free reorganization for the purpose of U.S. federal income taxes.
Both companies’ customer bases and complementary capabilities and offerings are expected to expand product usage and sales opportunities. As a result, the combined company will allow Zendesk to get feedback on customer service and collect important data about these interactions. Therefore, companies will now be able to listen to their customers, develop a better picture and act on this insight.
“(W)ith Momentive, Zendesk will create what businesses really need(,) a customer intelligence company that connects what customers say and do, with how they think and feel.” - Zendesk Press Release
Company Details (Acquirer - Zendesk)
Zendesk is a public company headquartered in San Francisco, California. It provides software-as-a-service products related to customer support, sales, and other customer communications.
Founded in 2007, headquartered in San Francisco, California
CEO: Mikkel Svane
Number of employees: 3570 (2019)
Market Cap: $12.28B (as of 05/11/2021)
EV: $12.46B
LTM Revenue: $1.25B
LTM EBITDA: – $127.83M
LTM EV/Revenue: 9.99x
LTM EV/EBITDA: – 97.8x
Company Details (Target - Momentive Global)
Momentive Global, formerly known as Survey Monkey, was founded in 1999 by American businessmen Ryan and Chris Finley. Headquartered in California, the firm has expanded around the world, maintaining offices in Portland, Seattle, Dublin, Ottawa, London, and Sydney. The firm specializes in experience management, offering cloud-based software in brand & market insights, product experience, employee & customer experience, online survey development, and a suite of paid back-end programs. In June 2021, Momentive decided to rebrand their company away from SurveyMonkey in order to better capture their B2B services, while maintaining their survey creation service, and many other offerings, as subsidiaries within the company.
Founded in 1999, headquartered in San Mateo, California, USA
CEO: Zander Lurie
Number of employees: 1200
Market Cap: $3.38B (as of 04/11/2021)
EV: $3.39B
LTM Revenue: $408.09M
LTM EBITDA: $-70.59M
LTM EV/Revenue: 8.31
LTM EV/EBITDA: -71.56
Projections and Assumptions
Short-term consequences
Zendesk’s agreement to acquire Momentive elicited some immediate reactions in the market. Despite optimistic forward-looking statements, the liquidation required to make this deal for a slower-growing company prompts analysts to question the timing of the deal. With Zendesk’s shares dropping 14% and Momentive falling 8% following the announcement, the firms will have to reckon with the synergies they can potentially leverage on a short timeline to prove the payoff of this acquisition.
By acquiring Momentive, Zendesk acquired a business with over $100 million in quarterly revenue that’s best known for its survey software. Immediate competitors include Salesforce, ServiceNow, Zoho and Monday.com. Zendesk will have to work to set precedent early in the acquisition such that the available market share only grows headed into the next quarterly results.
Long-term Upsides
Zendesk currently occupies an extremely competitive market, particularly their core customer service products and sales & marketing software. Key rivals include Salesforce and ServiceNow at the high end, with Frenchworks, Kustomer, and Zoho in the midmarket, and with some of its other services.
Through Zendesk’s acquisition, the company is able to instantly obtain a business with over $100 million in quarterly revenue that will synergize well with their current product portfolio. Given each company’s sizable consumer bases and complementary capabilities, there is an immense opportunity for joint product adoption and greatly driving growth in the long run. Prior to the transaction, Zendesk was badly underperforming compared to its peers, thus, this strategic purchase may aid in providing a key competitive advantage to drive their performance past their competitors. Particularly, Momentive’s stronghold within the survey management industry will allow Zendesk to help businesses build stronger relationships with their stakeholders, providing their clients with the ability to create data-driven, personal understandings of their consumer bases. Furthermore, Momentive has been exploring machine learning and AI to boost the effectiveness and personalization of their services, and now, Zendesk will be able to capitalize on this research to deliver enhanced service offerings to their clients.
In the long run, Zendesk claims that their 78% stake in the firm should be “growth accretive in its first full operating year,” accelerating the firm’s plan to achieve $3.5 billion in revenue in 2024.
Ultimately, Zendesk’s founder and CEO, Mikkel Svane, hopes that the acquisition will create a “powerful new customer intelligence company” that drives Zendesk to the top of their market.
Risks and Uncertainties
The bulk of any risks and uncertainties lie in the short-term timeline following the completion of the acquisition early next year. The reaction from the market solely based on the announcement can be seen as aforementioned. From a competitive standpoint, Zendesk will have to keep an eye on close competitor SurveyMonkey as its current market performance indicates a decreasing market presence. Banking on this trend could provide Zendesk with the opportunity to make a move with Momentive under its wing.