Zendesk to be acquired for $10.2B by investor consortium

CLOUD

Zendesk Inc., a major provider of customer service and sales software, will be acquired by an investor consortium for $10.2 billion.

Zendesk announced the acquisition this morning. 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. The deal values Zendesk at $77.50 per share, 34% higher than the price at which the company’s stock closed on Thursday.

“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,” said Zendesk founder and Chief Executive Officer Mikkel Svane.

Zendesk is primarily known for its cloud-based customer service platform. The platform enables help desk teams process customer support requests through a centralized interface that provides access to automation tools, knowledge base resources and other resources. An analytics dashboard helps managers find opportunities to increase efficiency. 

Zendesk also maintains a presence in the sales software market. It offers a customer relationship platform that companies can use to store data about deal opportunities and coordinate customer acquisition efforts. Between them, Zendesk’s applications for customer service and sales teams are used by more than 100,000 companies.

The $10.2 billion price tag of the proposed acquisition reflects Zendesk’s significant market share in the segments where it operates. Earlier this year, a group of prospective buyers offered even more to buy the company. The group made a $17 billion bid for Zendesk, but the company’s board of directors rejected the takeover offer in February.

A number of significant developments occurred between Zendesk’s February decision to reject the $17 billion takeover offer and and its decision to sign the $10.2 billion acquisition agreement that was announced today. The company’s shares lost more than 20% of their value amid a broader selloff in tech stocks. Additionally, Zendesk had to scrap its proposed $4.1 billion acquisition of Momentiv Inc. after shareholders didn’t approve the transaction.

Momentiv operates the widely used SurveyMonkey survey platform, which organizations use for tasks such as measuring customer sentiment. Zendesk faced pressure to scrap the deal from activist investor Jana Partners, which was later joined by other shareholders. Jana Partners at one point also sought to replace four of Zendesk’s directors.

The sale of Zendesk to the consortium that made the $10.2 billion acquisition offer is expected to close in the fourth quarter. Afterwards, Zendesk will operate as a privately held company, which means that it won’t have to disclose earnings publicly.

Zendesk is profitable and grew its revenues by 30%, to $388 million, in the first quarter. Analysts had expected the company to post sales of $384.6 million.

One factor behind Zendesk’s better-than-expected revenue growth is that an increasing number of large organizations are adopting its platform. The number of customers that spend more than $250,000 on the company’s products jumped 41% in the first quarter, or 11% faster than its overall revenue growth rate. Such customers now account for 39% of Zendesk’s total annual recurring revenue.

Zendesk has also increased sales by combining its applications into an integrated bundle dubbed Zendesk Suite. In its first-quarter earnings report, the company detailed that customers who buy the suite are more likely to increase their product spending over time. Additionally, the Zendesk Suite has a higher customer retention rate than the company’s individual cloud applications.

The sale of Zendesk follows several other private equity-backed acquisitions in the enterprise software market. In April, private equity firm KKR inked a deal to buy Barracuda Networks Inc., a major provider of cybersecurity software for enterprises. Last November, Clearlake Capital Group agreed to acquire former Dell Technologies Inc. subsidiary Quest Software Inc. for a reported $5.4 billion.

Photo: Zendesk