National Post (National Edition)



Zoom Video Communicat­ions Inc., whose online conferenci­ng services took off during the COVID-19 pandemic, agreed to acquire Five9 Inc. for US$14.7 billion, using its surging stock to expand into an adjacent market that could bolster revenue as lockdowns end.

The value of the all-stock offer is US$200.18 a share based on the closing price for Zoom's common stock on Friday, compared with Five9's US$177.60 price on Friday, the companies said a statement Sunday. The target firm will become an operating unit of Zoom after the deal, which is subject to shareholde­r approval and slated to close in the first half of 2022.

Zoom has been looking for ways to keep growing as workers begin to return to the office and students go back to school, and the deal for Five9 will help it expand offerings to its more lucrative business and enterprise clients. Five9, based in San Ramon, Calif., makes cloudbased software that uses artificial intelligen­ce to help companies answer questions from customers and interact with them regardless of language, location or device.

The traditiona­l call centre, where a customer service representa­tive responded by phone, has shifted to the internet and is now often powered or augmented by chat bots. The market for these cloud-based customer call centres is estimated at US$24 billion, according to the companies. Together, Zoom and Five9 aim to better compete with the likes of Cisco Systems Inc., RingCentra­l Inc. and Inc.

Zoom chief executive Eric Yuan called Five9 a “natural fit,” and said Five9 is complement­ary to Zoom Phone, the company's business that replaces traditiona­l company telephone services with modern, cloud-based offerings. But some analysts thought it was an expensive attempt to grab growth that Zoom couldn't achieve on its own. Zoom shares fell 2.15 per cent to US$354.20 in Monday trading in New York, along with a broader market selloff.

“This is a high-priced deal which appears to attempt to build out the Zoom Phone offering,” said Neil Campling, an analyst at Mirabaud Securities. “Paying such a high price for a non-differenti­ated offering smacks of attempts to move into adjacent markets as Zoom fatigue sets in.”

Five9's customers include big names like Under Armour, Citrix, Athena Health and Lululemon, according to its website. Rowan Trollope, CEO of Five9, will become a president at Zoom while continuing to run Five9 as an operating unit. Goldman Sachs advised Zoom and Qatalyst Partners advised Five9.

Joining forces builds on Zoom and Five9's existing co-selling relationsh­ip and the decision was driven by “tremendous” customer interest to have one integrated solution, Trollope said on a call with analysts on Monday. “This is not an exit, this is just the beginning. We can absolutely come together to revolution­ize this space.”

Trollope added that for Five9, the deal will allow the company to extend its reach globally by leveraging Zoom's distributi­on network. “We had barely just scratched the surface. This is a good accelerato­r for internatio­nal growth.”

Zoom rose to prominence after the pandemic hit in early 2020, becoming ubiquitous as people forced home by lockdowns used the service to connect remotely to work, school, friends and family. But investors have raised concerns this year about whether that growth will continue as vaccinatio­ns increase and shutdowns end.

As pandemic lockdowns have waned, the future of remote work has become a pressing question, and Zoom's competitor­s have launched hybrid work features in a race to accommodat­e companies' needs. Microsoft Corp. unveiled design changes to its Teams platform in order to improve remote workers' interactio­ns in meetings. Alphabet Inc.'s Google has revealed updates to its Workspace productivi­ty suite, including new tools for its Meet video-conferenci­ng system.

“With more workflows going digital, organizati­ons are also no longer looking at contact centre interactio­ns with customers in a vacuum,” said Carolina Milanesi, president and principal analyst at Creative Strategies. “Being able to leverage the data across, say, sales or when escalating an issue can be more seamless when done on one platform.”

She pointed out that Cisco has tied its contact centre product with its Webex teleconfer­encing software, making it more of a one-stop shop. The Zoom deal gives the company similar strategies for integratin­g online chat and conferenci­ng products, she said, adding that Five9 also provides Zoom access to artificial intelligen­ce tools for analyzing data from a contact centre.

The Five9 deal helps Zoom “grow their platform and participat­e in another market at the cusp of transition­ing to the cloud as digital transforma­tion efforts take hold,” Morgan Stanley analysts wrote.

Zoom is taking advantage of a stunning stock rally to bankroll the acquisitio­n of Five9. Its stock soared about five-fold during 2020 and has risen another 7.3 per cent in the year to date, pushing its market value past US$100 billion.

Five9 competes in a market for cloud services that help companies handle customers. Amazon entered the market with Amazon Connect in 2017. Other vendors include Talkdesk Inc. and Vonage Holdings Corp.

The acquisitio­n is Zoom's fourth since the start of the pandemic, according to data compiled by Bloomberg. In June, Zoom announced that it had signed a deal to acquire German startup Karlsruhe Informatio­n Technology Solutions-kites GmbH, a translatio­n software maker.

In March, Zoom was part of a group that acquired a minority stake in software firm Assembled Inc., the data showed. And in May 2020, it bought Keybase Financial Group Inc., which makes a secure messaging and file-sharing service, for undisclose­d terms to bolster its encryption technology.

Zoom was founded in 2011 by Yuan, the Chinese-born son of mining engineers who grew up in Shandong province. Yuan idolized Microsoft founder Bill Gates and longed to work in Silicon Valley. After two years of failed efforts to secure a U.S. visa, he succeeded on his ninth try. Early on, he worked at then-startup Webex, the online conferenci­ng tool that was later acquired by Cisco. He rose through the ranks to become a vice-president of engineerin­g, managing 800 workers, and agitated unsuccessf­ully for Cisco to develop a product that worked on mobile phones, as well as PCs. As it surged in popularity during the pandemic, Zoom suffered growing pains, often coming under criticism for privacy lapses. It was chided for a policy that let it share the content of video chats with ad-tracking companies, and it made claims about privacy protection using end-to-end encryption that weren't true. In one of the most startling revelation­s, made by University of Toronto researcher­s, Zoom sometimes routed meetings through servers in China even when participan­ts were outside the country. That raised the prospect of snooping by Chinese authoritie­s. The company went on to address several issues, with Yuan apologizin­g publicly.


 ?? DADO RUVIC / REUTERS ILLUSTRATI­ON / FILES ?? Zoom has been looking for ways to keep growing as workers begin to return to the office and students go back to
school, and the deal for Five9 will help it expand offerings to its more lucrative business and enterprise clients.
DADO RUVIC / REUTERS ILLUSTRATI­ON / FILES Zoom has been looking for ways to keep growing as workers begin to return to the office and students go back to school, and the deal for Five9 will help it expand offerings to its more lucrative business and enterprise clients.

Newspapers in English

Newspapers from Canada