Eric Yuan, founder and CEO of Zoom Video Communications Inc., Center, reacts as he rings the opening bell during the company’s initial public offering (IPO) on the Nasdaq MarketSite in New York, United States, on Thursday, April 18, 2019. Zoom reported net income of $ 7.6 million on sales of $ 331 million for the year ended January, and is now nine times the $ 1 billion valuation it received after a round of funding backed up for two years.
Victor J. Blue | Bloomberg | Getty Images
Zoom announced on Sunday that it was buying Five9, a cloud contact center software provider, in a stock transaction valued at $ 14.7 billion.
The deal marks Zoom’s first billion-dollar acquisition and comes as the company prepares for a post-pandemic world where employees return to the office. According to FactSet, it is the second largest US tech deal this year, behind Microsoft’s proposed $ 16 billion purchase of Nuance Communications.
“We’re always looking for ways to improve our platform, and the addition of Five9 is a natural fit that will add even more joy and value to our customers,” Zoom CEO Eric Yuan said in a press release.
Five9 closed Friday with a market cap of $ 11.9 billion, or $ 177.60 per share. According to Zoom, Five9 shareholders will receive 0.5533 shares of Zoom Video Communications for every Five9 share. That values Five9 at $ 200.28 per share, a 13% premium, and roughly 14% of Zoom’s market cap of nearly $ 107 billion.
Zoom has been among the top growth stories in the 16 months since Covid-19 led to a sudden shutdown of offices around the world, forcing employees in finance, retail, technology and law firms to communicate from remote locations .
After a 326% increase in sales in 2020, Zoom is facing a natural slowdown, especially as businesses reopen and face-to-face meetings resume. While the company has launched new products to anticipate the changes to come in its business, it’s now so big that organic growth alone is unlikely to please Wall Street. New revenue streams are also needed as Microsoft intensifies competition in video chat with teams.
Zoom’s share price was up nearly 400% last year, though it’s down 36% since its high in October.
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Zoom and Five9 since the beginning of 2020
Five9 has seen rapid growth of its own since early 2020 as the demand for call center technology that enables agents to do their work from home increased. Companies quickly had to adapt to all kinds of cloud software, including for their contact centers.
Five9’s revenue rose 33% to $ 435 million last year. CEO Rowan Trollope told CNBC’s Jim Cramer in May that the company has signed two of its largest deals recently and expects to collectively generate more than $ 20 million annually.
“We no longer have to convince customers that cloud is an acceptable option,” he said. “You’re just diving in.”
The deal brings together two former Cisco executives. Yuan, who founded Zoom in 2011, previously helped build WebEx, which Cisco bought in 2007 for $ 3.2 billion. He stayed with Cisco until he went to start Zoom.
Trollope becomes President of Zoom and remains CEO of Five9, reporting to Yuan.
Trollope joined Cisco in 2012 after a 22-year career at Symantec. He eventually rose to senior vice president, responsible for all Cisco collaboration products, and was viewed by some analysts as senior lieutenant to CEO Chuck Robbins. He left the position of CEO at Five9 in 2018.
The transaction is expected to close in the first half of 2022. Five9 shareholders have yet to approve the transaction and regulatory approval is required. Goldman Sachs advised Zoom on the acquisition and Frank Quattrone’s Qatalyst Partners advised Five9.
The two companies will be hosting an investor call on Zoom on Monday at 8:30 a.m. New York time.
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