Zoom CFO Kelly Steckelberg says that, in hindsight, there might have been some structuring options to give the company a better chance at acquiring Five9 a few months ago, but the failed deal is in the rearview mirror and Zoom is continuing to develop it’s in-house capabilities for a contact center solution.
“We were disappointed, absolutely,” Steckelberg said in a webcast hosted by spend management company Airbase.
Zoom’s effort to merge with Five9, a cloud-based, AI-assisted contact management platform, fell apart in September when the target company’s shareholders voted to reject the deal, which was structured as a stock-for-stock exchange.
Zoom saw the merger as part of its plan to offer expanded types of services, including a contact center solution, for when its pandemic-related surge in video-conferencing business subsided.
“It was in no way foundational to the success of our platform, nor was it the only way for us to offer our customers a compelling contact center solution,” Zoom’s CEO, Eric Yuan, said at the time.
The deal fell through in part because of a drop in the value of Zoom’s shares from the time it entered into the deal earlier this year to the time it went to Five9’s shareholders for their approval in the third quarter. The $14.7 billion deal would have been Zoom’s biggest acquisition and one of the biggest tech deals of the year.
Five9 shareholders, in line with the recommendation of International Shareholder Services (ISS), a proxy advisory firm, said the stock-for-stock exchange ratio agreed to by the two companies didn’t provide a large enough premium.
Five9 Shareholders were reportedly going to receive a 13% increase in the value of their stock, which by some analyses was considered too low given the growth trajectory expected in the cloud software space. On top of that, the drop in Zoom’s share price over the deal period — it was down about 25% at the time — the premium to Five9 shareholders would have been even less.
In talking about the deal with former Oracle CFO Jeff Epstein in the webcast, Steckelberg said Zoom decided not to revise the offer before the vote because it felt the stock-for-stock exchange ratio that had been agreed to was fair.
“The decision we could have made was to sweeten the deal,” she said. “[We] could have put in cash or could have changed the exchange ratio … but ultimately it felt like the deal that was on the table [was] a fair one for both sides and they would have the opportunity to share in the upside.”
There might have been some tactical things Zoom could have done too, thinking back, Steckelberg said, including structuring in a collar, which provides a hedge against fluctuations in the buyer’s stock price between the time the deal is signed and when it goes to closing. With a collar, the two parties get some assurance that the terms of the merger, including the dilutive effect of the combination, stay within negotiated limits.
“There probably were some mechanics that might have been able to put in place that would have helped,” she said. “For any future deals I’m involved in, [you] always have to think of an upside and a downside, and how would you want to protect against both sides of that. You can never predict the future, but there are mechanisms, with hindsight, [you] could have put in place that would have helped us get the deal across the line.”
Since then, Zoom has kept its focus on building a contact center solution in-house, as it was before the merger effort.
“As a company, you have to … take your future into your own hands and as a company [we] very quickly pivoted to continuing internal development around what we’re calling video engagement center, something that in the future for Zoom will be very important,” she said.
In addition, the two companies continue to have a product partnership.
“We think so highly of the Five9 team,” she said. “There was absolutely a reason why we wanted them to join Zoom. “[We] felt it was the right decision at the time and still think it’s the right decision. We just think it’s an unfortunate outcome.”
