Zoom to buy cloud-based call centre operator for US$14.7b to boost post-Covid growth

Hong Kong

ZOOM Video Communications, whose online conferencing services took off during the Covid-19 pandemic, agreed to acquire cloud-based call centre operator Five9 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 last Friday, compared with Five9's US$177.60 price on Friday, the companies said a statement on Sunday. The target firm will become an operating unit of Zoom's 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. Five9 specialises in contact centres, a market the companies estimate at US$24 billion. Together, Zoom and Five9 aim to better compete with the likes of Cisco Systems, RingCentral and Amazon in letting clients provide customer service via the Internet. One beneficiary could be Zoom Phone, a cloud-based calling service.

"With more workflows going digital, organisations 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 analysing data from a contact centre.

Five9's customers include big names such as Under Armour, Citrix, Athena Health and Lululemon, said its website. Rowan Trollope, chief executive officer (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.

"We are continuously looking for ways to enhance our platform, and the addition of Five9 is a natural fit," Zoom CEO Eric Yuan said in a statement.

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 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 videoconferencing system.

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.

Bloomberg Intelligence analysts Amine Bensaid and Mandeep Singh said: "The unified communications and collaboration (UC&C) market share of total information technology (IT) spending may remain stable at around 5 per cent as companies shift to cloud-native platforms, and should stay so post-pandemic. That's because organisations are rethinking their plans for digital technologies to include video, voice and team collaboration tools as flexible or hybrid-work models gain traction."

They added: "Unified communications as a service (UCaaS) should stay a key growth driver for the US$47 billion UC&C industry, with companies increasingly bundling video and collaboration solutions on the cloud to accommodate the secular change in work culture."

Zoom is taking advantage of a stunning stock rally to bankroll the acquisition of Five9. Its stock soared about fivefold 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 and Vonage Holdings.

The acquisition is the fourth deal by Zoom since the start of the pandemic, data compiled by Bloomberg showed. In June, Zoom announced without disclosing terms 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, the data showed. And in May 2020, it bought Keybase Financial Group, which makes a secure messaging and file-sharing service, for undisclosed terms to bolster its encryption technology.

Zoom was founded in 2011 by Mr Yuan, the Chinese-born son of mining engineers who grew up in Shandong province. He idolised Microsoft founder Bill Gates and longed to work in Silicon Valley. After two years of failed efforts to secure a US 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 Systems. 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 personal computers (PCs).

As it surged in popularity during the pandemic, Zoom suffered growing pains, often drawing 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 were not 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 Mr Yuan apologising publicly. BLOOMBERG