Zendesk heads into "a new chapter" with $10.2 billion acquisition taking the firm private

Mikkel Svane, CEO and Founder, Zendesk

Zendesk is to be acquired by a private equity consortium for $10.2 billion, ending months of speculation and scuttlebutt about its direction following shareholder rejection of its plan to purchase Momentive earlier this year.

The investor consortium buying the company includes Hellman & Friedman, Permira, a wholly-owned subsidiary of the Abu Dhabi Investment Authority and Singapore’s GIC sovereign wealth fund. Subject to shareholder approval, the deal is likely to close in Q4 this year, after which time Zendesk will operate as a privately-held firm.

Carl Bass, Lead Independent Director, Zendesk, commented:

The Board conducted an extensive strategic review over a three month period, receiving an actionable offer from Hellman & Friedman and Permira after the termination of our formal process. This transaction provides certainty of value for our shareholders at a significant premium to Zendesk’s trading price.

The extensive strategic review process included the evaluation of both standalone and transactional alternatives and considered a range of factors including current and anticipated market conditions, business momentum and long-term outlook. During this period, we 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.

Mikkel Svane, Founder and CEO of Zendesk, had hoped to persuade shareholders to buy into a planned $4.1 billion takeover of Momentive Global Inc, owners of the SurveyMonkey platform. But this was rejected by shareholders following lobbying by a number of activist investors. Around the same time, the firm rejected an unsolicited takeover bid from an unnamed private equity firm, reportedly offering $17 billion.

Earlier this month, the company had announced that it intended to stay independent, with Svane stating that a review of options had led to one conclusion:

The process did not yield any actionable options for Zendesk, and our Board unanimously determined that the right path to sustainably grow stockholder value lies in advancing Zendesk as an independent business.

Flash forward a few weeks and Svane says:

This is the start of a new chapter for Zendesk with partners that are aligned with the strength of our agile products and talented team, and are committed to providing the resources and expertise to continue our growth trajectory. With Hellman & Friedman and Permira’s support, we’ll continue to execute on our long-term strategy with our customers as our top priority, taking full advantage of the opportunity we see to help businesses navigate the ever changing expectations and demands of their customers.

The firm’s latest quarterly numbers showed 30% revenue growth year-on-year. Customers with more than $250,000 Annual Recurring Revenue (ARR) make up 39% of the total, up from 34% last year, while customers with more than $1 million ARR were up 65% year-on-year.

My take

Assuming that the deal does win shareholder approval, this move will put an end to the ongoing scuttlebutt that has been attached to the company in recent times. While the Momentive-centered strategy was well-articulated and rationalized by Zendesk management, the overwhelming rejection by investors was clearly a blow.

While ‘Plan B’ was to ‘keep on keeping on’, the discontent on the part of some activist shareholder groups was an ongoing distraction. The announcement of this acquisition and the plan to go private resulted in Jana Partners withdrawing its four nominees that it was pushing to join the Zendesk board.

By going private, Zendesk does indeed have a chance to open a new chapter. When the deal was announced on Friday, Zendesk stock soared 28%. Customer numbers are growing as is revenue and the firm’s Suite offering is one that has appeal to organisations of all sizes. What happens next remains to be seen, of course, but the best could be about to come.