Zoom's Junked Five9 Deal Shows Hurdles To Expansion

Zoom Video Communications Inc.'s aborted $14.7 billion acquisition of call center software firm Five9 Inc. has spotlighted issues that will weigh on the virtual meeting giant's next attempt to expand through dealmaking, analysts and investment bankers said.

Photo Insert: The Zoom headquarters in San Jose

Zoom's unwillingness to add cash to its bid and rely solely on its stock as currency to pay for the Five9 deal backfired after its shares slipped by as much as 29% in the weeks after the deal was announced in July, on concerns that the return to physical meetings as the COVID-19 pandemic wanes will erode its business.

Five9 shareholders voted down the deal last week, Krystal Hu, Svea Herbst-Bayliss, and Echo Wang reported for Reuters late on Oct. 4, 2021.

Investment bankers and analysts said Zoom's stock would likely remain volatile until investors establish what the prospects of its business will be once the pandemic is over. This decreases the chances of another acquisition target accepting Zoom's shares as currency in the near term, they said.

Zoom carries almost no debt but it had only $2 billion in cash as of the end of July, which it needs to fund growth initiatives. "Zoom has to figure out how to keep some of the customers that signed up as individual subscribers that may not need Zoom when they return to more physical lives," said Alex Zukin, an analyst at Wolfe Research.

Another hurdle that could give the next company that will attract Zoom's acquisition interest pause is its ties to China. US prosecutors charged a former China-based Zoom executive last year with disrupting video meetings commemorating the 31st anniversary of the Tiananmen Square crackdown at the request of the Chinese government.

A US Justice Department-led committee said last month it was reviewing Zoom's proposed acquisition of Five9 to see if it "poses a risk to the national security or law enforcement interests."

While Five9 shareholders voted down the Zoom deal before that review concluded, analysts said the regulatory intervention exposed a risk that will continue to weigh on the minds of other acquisition targets.

WEEKLY FEATURE : MVP Group Keeps Lights On During Pandemic