Acquisition of Zendesk; Private Equity buys Cloud ITSM, CRM software company
Zendesk will be acquired by private equity firms Hellman & Friedman and Permira for $10.2 billion. The M&A deal surfaces less than a month after Zendesk’s board completed a ‘strategic review’ of the business – saying at the time that the company would remain independent and not be sold .
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Describing the about-face that led to the sale of the company, Carl Bass, senior independent director of Zendesk, said:
“The board conducted an extensive strategic review over a three-month period, receiving a workable offer from Hellman & Friedman and Permira after our formal process was completed. This transaction provides value certainty to our shareholders at a significant premium to Zendesk’s stock price. The in-depth strategic review process included the evaluation of stand-alone and transactional alternatives and considered a range of factors, including current and forecast market conditions, business dynamics and long-term prospects. During this period, we have also worked constructively with major shareholders. The Board concluded that this transaction was the best alternative and the Board voted unanimously to support this transaction.
The offering represents a roughly 34% premium to Zendesk’s closing price on June 23, 2022. But it remains well below the $15.25 billion valuation Zendesk had in April 2022.
Zendesk Business Turbulence: the timeline
Although Zendesk is growing, the cloud software provider is facing concerns from activist shareholders who believe the company has been mismanaged.
Among Zendesk developments and key facts:
- June 24, 2022: Zendesk confirmed the sale of the business less than a month after saying there were no plans to sell the business.
- June 9, 2022: Zendesk’s board of directors “has unanimously determined that continuing to execute the company’s strategic plan as an independent public company is in the best interests of the company and its shareholders at this time.”
- May 12, 2022: Private equity firms Permira, Hellman & Friedman and Advent International are each considering a potential acquisition of Zendesk, DealReported said. Zendesk’s current market capitalization is now $12.34 billion.
- April 19, 2022: Zendesk’s market capitalization ($ZEN) is $15.25 billion.
- April 18, 2022: The company has engaged Qatalyst Partners to scout potential buyers for the business, Bloomberg reported – although there is no guarantee an actual sale of the business will occur.
- February 25, 2022: Zendesk scrapped a planned takeover of SurveyMonkey’s parent company, Momentive, in February 2022. Critics said the $4.2 billion deal was too expensive and unsuitable for Zendesk’s business.
- February 16, 2022: Jana Partners said it wants Zendesk to revise its board or sell itself.
- February 10, 2022: Zendesk rejected a $16 billion takeover bid from private equity firms.
How Zendesk explored selling the business
Against this backdrop, Qatalyst Partners — working on behalf of Zendesk — in early 2022 reached out to software companies and private equity firms to explore a possible sale of the Zendesk company, Bloomberg said. Private equity firms such as Thoma Bravo, Hellman & Friedman, Advent International Corp. and Permira have previously expressed interest in the company.
We don’t know if any other private equity firms with MSP software experience — names like Insight Partners, Summit Partners, and Vista Equity Partners, among others — have taken a look at Zendesk. Many of these private equity firms are currently backing sales automation software companies. Examples include:
- Insight Partners supports Espressive, Gainsight, Glia, Pipedrive, QuotaPath, Salesloft, SetSail and Showpad.
- Summit Partners supports Akeneo, Allego, Klaviyo, MarketLogic, Mavrck, Optimove and Podium.
- Vista Equity supports Acquia, Drift, Gainsight, Jebbit, Khoros, Pipedrive, Salesloft and Xactly. Related To note: Zendesk advisor Qatalyst previously represented Gainsight in its sale to Vista Equity.
In terms of strategic software vendors, Adobe was not interested in buying Zendesk, CNBC reported in February 2022.
Zendesk’s business and revenue history, cloud software evolution
Zendesk has grown through direct sales, channel partners, and acquisitions. Key moves include:
- 2019: Zendesk acquired Smooch Technologies Holdings for omnichannel communications in 2019. Result: Zendesk’s IT service management and CRM platforms can more easily and seamlessly connect with customers through applications such as WhatsApp, WeChat, Line and Messenger, as well as email and SMS.
- 2018: Zendesk has acquired FutureSimple and Base, a sales force automation software platform for small businesses. The move further blurred the line between IT service management (ITSM) and sales force automation tools in the SMB market – a major trend involving multiple vendors and vertical customers.
Meanwhile, Zendesk has continued to grow revenue, although net profits are a different story. For the quarter ended March 31, 2022:
- Zendesk’s revenue was $388.3 million, up 30% from the corresponding quarter in 2021.
- GAAP net loss was $66.9 million.
And for the quarter ending June 30, 2022, Zendesk expects to report revenue between $402 million and $408 million, the company said in April 2022.
Blog originally published on April 19, 2022. Subsequently updated to reflect more discussion of M&A and the end of the potential sale process.