The Deal That Wasn’t; Zoom’s Earning Guidance Spooked Five9 Shareholders
by Jim Lundy
The Zoom-Five9 deal came to a massive halt with Five9 shareholders rejecting it. Part of the reason was the recent Zoom earnings release, where they had to reset expectations. However, it wasn’t just the Zoom earnings warning that tanked the deal. This blog reviews two of the key reasons for the failed merger attempt.
The Zoom Earnings Release was Great, but the Guidance was not
On August 30th, Zoom announced a 50% increase in earnings over the same quarter last year. However, while that was outstanding, they gave guidance of a slow down coming due to the return to the office.
It was this simple guidance – of a slowdown in future earnings– that spooked the Five9 investors. Ultimately, they felt Five9 was worth more, and given their growth as one of the fastest-growing ICC firms, we agree they are worth more.
A Deal Sweetener by Zoom was not Added
Aragon feels that Zoom could have increased its offer, but here too egos come into play. Clearly given Zoom’s growth, the deal was not an issue – but there may have been one other issue that may have caused the deal team to lose enthusiasm. That issue is security.
FCC Scrutiny Of the Zoom Five9 Deal – over Security
The Zoom Five9 deal was under scrutiny by the Federal Communications Commission (FCC) – according to an article in the Wall Street Journal.
While we may never know what factor that the perceived security issue was for Zoom, Zoom needs to put its Chinese issues behind it and build trust with US Regulators.
Zoom is not the only company that operates in China, but there was an issue last year with a Zoom Employee spying on dissidents who were using the platform for meetings – only to have their meetings canceled for unknown issues. That employee was fired, but that scenario, and issues about encryption, created an era of a lack of trust with US Government regulators.
What Happens Next – UCC and ICC Convergence is Still On-track
The failed deal will not stop the need for Zoom to add Contact Center capabilities to its stack – and for Five9 to add UCC capabilities to make it a full platform. We expect Zoom to make a different move down the road. Potential acquirers for Zoom include 8×8, NICE inContact, and Talkdesk.
Five9 is still an attractive target – we’d put Avaya and RingCentral on the list of potential acquirers.
While the merger with Five9 and Zoom could have been great – it was not meant to be. Look for both Five9 and Zoom to continue to build out their respective platforms as the race to integrate UC&C and ICC continues.