Zoom announced today that it will buy CCaaS provider, Five9, in an all stock deal worth about $15B (~$14.7B). Five9 just announced annual revenue of ~$550M with EBIDTA of ~$88M. Do the math?! (Plus Five9 is NOT profitable, losing millions every quarter.)
The CCaaS TAM is approximately $24B; Zoom is spending more than half that to grab some!
Zoom has the cheapest UCaaS/phone service at $10 and saw the fastest rise to 1M users in just 24 months. It now sits at 1.6M UCaaS seats. Zoom wants more enterprise accounts; it thinks Five9 gets them there. We’ll see.
A bunch of execs woke up this morning and choked on their coffee because they signed partner agreements with Five9 — Nextiva and Mitel to name two! What do they do now?
There has been speculation for months on what CCaaS player Zoom would buy. Many thought TalkDesk due to price. I thought Aircall due to price and its ability to get Zoom into Verizon deals, which would have included enterprise deals. It would have been a lot cheaper. However, since this is all stock, maybe the other two wanted cash — since both companies are VC backed, they undoubtedly would prefer cash to stock.
Zoom has one more problem to fix: phones. They have a Broadsoft like list of features but they lack the ability to turn up devices without headache and could use some serious VoIP specialization. Who do they buy?
Let’s talk about the Omdia Top 25: RingCentral, Zoom, Microsoft, 8×8, Cisco, Verizon, Comcast, Sangoma, Mitel, LogMeIn/GoTo, Vonage, Fuze, Nextiva, Intrado (West), NetFortris, Dialpad, CoreDial, Intermedia, Ooma, Fusion Connect, CenturyLink, Windstream, Masergy, and Evolve IP. Many of these companies are too expensive (in blue). 8×8 market cap is $2.7B this morning. Some are a bad fit: Sangoma, Fuze, Fusion, LogMeIn, Masergy and Intrado. They need a pure play UCaaS provider.
Dialpad is the best fit but they suffer the same issues that Zoom does (sorry Craig!).
I don’t think Coredial or Evolve IP are for sale. Zoom could do what Intrado (West) did when they acquired OnSip – buy a small, efficient service provider. There are a number of those.
Ooma doesn’t get them mid-market or enterprise deals.
Netfortris doesn’t either and the Fonality division may be something that kills a deal.
Mitel and Nextiva are good fits because they are both for sale (per rumor) and both partner with Five9. Mitel might cost $2B but Nextiva would be about $1B.
Fuze is possible because they are always for sale, but something must be wrong there that no one has bought them yet.
Another possibility would be Intermedia whose S1 filing valued it at $1.5B, but Intermedia has a CCaaS solution.
A few asked me what does RingCentral do now? Well, they can’t buy NICE InContact. NICE market cap is $16.3B this morning. It would cost RNG $19.6B to buy them. RNG has a $22.5B cap and acquired a CCaaS solution named Connect First. Anaylsts might tank the stock if RNG tried to buy NICE. Here’s what they see:
“March 2021: RingCentral had debt of US$1.37b, up from US$1.04b in one year. However, it does have US$463.1m in cash. According to the last reported balance sheet, RingCentral had liabilities of US$444.4m due within 12 months, and liabilities of US$1.41b due beyond 12 months.” [source]
“Currently unprofitable and not forecast to become profitable over the next 3 years.
Significant insider selling over the past 3 months.
Shareholders have been diluted in the past year.” [source]
Some pundits say this puts pressure on Microsoft and Salesforce. How? They are two of the largest and deepest SaaS companies. MS Teams has 175 million daily users. Each of them can acquire a cloud contact center solution tomorrow. Pick one: NICE, Lifesize, Aircall, Talkdesk, Enghouse, UJET.
It puts pressure on RNG and Cisco. Cisco just leveled up its Webex Calling (and is still far behind Microsoft). It’s Contact Center needs help, too. This certainly changes the CCaaS landscape, just as customers are clamoring for a UCaaS+CCaaS solution.
Buyers will be looking for stability on top of functionality and execution now. For Zoom, M&A means integration hassles for about a year. Meanwhile, CCaaS execs will be focused on M&A instead of sales and execution. That means if you are in a stable org, you can steal some market share from the confused and distracted.
PS: the CCaaS TAM is valued at around $28.6 billion by 2025. And Zoom spent $15B to buy a piece of it!!!
Zoom’s revenue is $2.65B. Zoom’s customer base: 467K customers with more than 10 employees, up 470% YoY. Just 1,644 customers contributing more than $100,000 in trailing 12 months ARR.
Quite a few UCaaS providers have end-point management issues. Phonism (note: I am on the Board here) is a SaaS platform that could solve that problem for all/any of them.