Zoom’s $14.7bn Acquisition of Five9

By James Muse, Omar Santos, Sean Salamante (Columbia University), Martín Palomar GA, Leo Clement, Olivier Baverez (HEC Paris)

 

Overview of the deal


Acquirer: Zoom Video Communications

Target: Five9

Implied Equity Value: 14.7bn

Total Transaction Size:

Closed date: Failed Deal

Acquirer advisor: Goldman Sachs & Co. LLC

Target advisor: Qatalyst Partners


Zoom Video Communications, Inc. (NASDAQ: ZM) announced on July 18th, 2021 an agreement to acquire cloud contact center provider Five9, Inc. (NASDAQ: FIVN) at a transaction equity value of $14.7 billion representing a 13% valuation premium in an all-stock transaction. Five9 investors were to receive 0.553 shares of Zoom’s Class A common stock for every one share of Five9 stock. The transaction was supposed to mark Zoom’s fourth acquisition since the Covid-19 pandemic and the second largest U.S. tech transaction in 2021, ~$2bn less than Microsoft’s acquisition of Nuance Communications. After rallying over 400% since the start of the pandemic and growing revenues from $622.7mm to $2.65bn (+325.8%) this acquisition is a clear attempt to keep Zoom’s explosive growth on track. The synergies between Five9’s AI capabilities in the call-center space and Zoom’s global distribution network would have allowed for a more vertically integrated business model to compete with the likes of Cisco, which has already merged its contact center business with its Webex video conferencing software. Eric Yuan, founder and chief executive officer of Zoom, worked previously at Webex and has emphasized Zoom’s “open-partner ecosystem” as a key differentiator driving innovation and growth. In Zoom’s FY22 Analyst Day deck, the company expects a TAM of $91bn by 2025 and a 130% revenue CAGR from 2019 to 2022, which it plans on achieving through Zoom Phone a modern, cloud phone system and increased penetration from their video conferencing software (Zoom Rooms). Zoom is down 53% from its $559 peak on October 16th, 2020.


“Combining Five9’s Contact Center as a Service (“CCaaS”) solution with Zoom’s broad communications platform will transform how businesses connect with their customers, building the customer engagement platform of the future.” - (Eric S. Yuan, Founder and CEO of Zoom)

Company Details: (Acquirer - Zoom Video Communications, Inc.)


Zoom Video Communications, Inc. is an American company that provides video communication services. Zoom is headquartered in San Jose, California, and was founded in 2011 by its CEO Eric S. Yuan. The firm offers meetings, chat, rooms, workspaces, video webinars, and many others that serve many industries including education, finance, government, and healthcare.


Founded in 2011, headquartered in San Jose, California

CEO: Eric S. Yuan

Number of employees: 4,422

Market Cap: $79.5bn (as of October 1st 2021)

EV: $77.3bn

LTM Revenue: $3.6bn (LTM Jul ‘21)

LTM EBITDA: $1.1bn (LTM Jul ‘21)

LTM EV/Revenue: 29.5x

LTM EV/EBITDA: 95.3x

(Source: FactSet)


Company Details (Target - Five9)


Five9 is a leader in cloud-based contact center software. They have over 2000 customers worldwide and over 20 years of experience in cloud contact. With their platform, they are able to manage the customer experience from start to finish in a single architecture.


Founded in 2001, headquartered in San Ramon, California, USA

CEO: Rowan Trollope

Number of employees: 1550

Market Cap: $11.3bn

EV: $11.9bn

FY2020 Revenue: $435M

FY2020 EBITDA: $85.7M


Projections and Assumptions


Short-term consequences