ACQUISITION

IMPOSSIBLE - HOW
ZOOM’S ACQUISITION
OF FIVE9 FELL APART
High Bridge
Management Academy
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Mergers and Medium 15 mins

acquisitions 1

Acquisition Impossible 1 Copyright © 2021 High Bridge

Acquisition Impossible - How Zoom’s
acquisition of Five9 fell apart
What exactly happened?
Zoom, as we all know, is a video-
conferencing giant. It has been one of the
biggest winners of the pandemic era with its
share price hitting $600 at the peak of the
pandemic (almost 10 times its pre-
pandemic value). This brought Zoom
straight into the big leagues of the tech
industry.
What would any smart company do in a
period of financial prosperity?
With the added capital that was now
available to them, Zoom planned to diversify
into the Cloud Contact Center market. A
Cloud Contact Center enables companies to
engage customers on their channel of
choice, streamline operations, and use the
power of practical AI, automation, and the
cloud to increase business agility. Five9 was
a key player in this market and hence
appeared to be a ripe target for an
acquisition.
Zoom had announced earlier this year that it
was acquiring Five9 in an all-stock purchase
for a staggering $14.7 billion. This would
have been Zoom’s first multi-billion-dollar
deal and also one of the largest acquisitions
this year. However, the deal recently fell
through.
Acquisition Impossible
Why did the deal fail?
There were two key reasons behind the
failure of the deal:
1. Market reason
Since it was a share swap deal, at the agreed
price of Zoom’s shares, Five9 shareholders
would only receive a 13% premium on their
value of shares prior to the deal. This proved
to be a big hurdle since the cloud software
is booming and plenty of Five9’s competitors
received higher premiums. Furthermore,
Zoom’s stock fell by 28% since the deal was
announced, while Five9’s shares fell by just
11%, which meant that the premium would
be even lower than before.
2. Non-market reason
A branch of the U.S. Department of Justice
was closely reviewing the deal and its
potential outcomes due to Zoom’s close links
with China. Zoom has engineering teams in
China who have access to their servers and
can thus access the content of potential
communications in China. Additionally, Zoom
revealed that certain meetings held by its
non-Chinese users might have been “allowed
to connect to systems in China, where they
should not have been able to connect in
2020”. Although this may not have been the
deciding factor, it certainly played a role in
swaying the minds of Five9’s stakeholders.
2 Copyright © 2021 High Bridge
But… did it even make sense for Zoom to pursue this deal?

Let’s take a look at a new framework that helps us analyze companies’ strategic decisions
such as acquisitions.

Companies should move through their strategic choices following a 5-step reflective model:

Source: Harvard Business Review by Seymour Tilles

Let’s now apply this framework to our discussion -

Vision

Zoom’s mission is to make communications frictionless. Thus, acquiring a company that

helps other companies manage their communication channels fits this vision quite well.

Internal Consistency

Zoom was looking to diversify their offerings and further consolidate their position as a
leader in cloud-based communication. Five9 could have helped Zoom achieve these
objectives

External Consistency

Cloud based communication systems were seeing huge investments being poured in and
the market size had grown exponentially. This was a great time to enter the market

Feasibility

This is where Zoom faltered with the deal. The share swap structure failed to appeal to
Five9’s shareholders due to the low premium offered and the volatile nature of Zoom’s
stock.

Corporate Advantage

In this case Zoom did have an advantage over other players in the form of its brand
popularity, financial strength and technical prowess.
BUSINESS
CHALLENGE
Challenge
Using the framework you have just learnt, analyze the acquisition of WhatsApp by Facebook.

Our tips
1) Start by understanding the context of the question
2) Adapt the framework you just learnt to this case
3) Make sure to use your existing knowledge of these two well-known companies to
perform your analysis

Some useful resources:

• How exactly did the acquisition fall flat?

Zoom and Five9 abandon $14.7 billion acquisition (cnbc.com)
• What does Five9 do? How It Works (five9.com)