Zendesk co-founder and CEO Mikkel Svane
Eric Piermont | AFP | Getty Photographs
Zendesk shares plummeted as a lot as 23% on Friday after the developer of customer-service software program agreed to spend nearly one-third of its market cap on the acquisition of Momentive Global, previously often known as SurveyMonkey. Momentive shares fell 9%.
Analysts slashed their scores and worth targets on Zendesk due to the hefty dilution and the danger of spending a lot on a enterprise that is rising extra slowly than the acquirer. Zendesk’s income is on tempo to develop nearly 30% this yr, whereas Momentive is predicted to develop by slightly below 20%.
Zendesk mentioned it might pay 0.225 shares for each share of Momentive, equal to about $28 a share, based mostly on Zendesk’s 15-day common by Oct. 26. At Thursday’s closing worth, that comes to simply over $4.1 billion, although that is already dropped with Friday’s slide within the inventory costs.
The businesses mentioned they count on to shut the acquisition within the first half of subsequent yr. Zendesk said the deal needs to be “development accretive” by 2023 and that it’s going to velocity up its plan to attain $3.5 billion in income by a yr.
Zendesk faces a swarm of opponents with its core customer support merchandise and within the markets for gross sales and advertising software program. Rivals embrace Salesforce and ServiceNow on the excessive finish and Freshworks, Kustomer, Zoho and Monday.com within the mid-market and with a few of its different companies.
By buying Momentive, Zendesk immediately picks up a enterprise with over $100 million in quarterly income that is finest recognized for its survey software program. The corporate rebranded from SurveyMonkey to Momentive in June, to indicate its enlargement into different areas, like offering market and model evaluation to prospects. Qualtrics, considered one of Momentive’s essential opponents, spun out of SAP in January and is now valued at about $24 billion.
“The Momentive mixture might present some go to market synergy over time” for Zendesk, wrote analysts at B of A Securities, in a report on Friday. “Nevertheless we’re skeptical, given SurveyMonkey’s largely down market presence versus Zendesk, more and more shifting into the enterprise. Additionally, Momentive’s 20% development fee is nicely beneath Zendesk’s 30%+.”
B of A reduce its score to impartial from purchase and lowered its worth goal to $120 from $185. Zendesk was buying and selling at simply over $100 on Friday. Piper Sandler reduce its suggestion to impartial from purchase and diminished its worth goal to $122 from $175, citing “near-term integration dangers and potential shareholder dilution.”
Zendesk was already badly underperforming its friends for the yr previous to the introduced acquisition. The inventory was down 17% in 2021, as of Thursday’s shut, whereas the Nasdaq was up 60% and the WisdomTree Cloud Computing ETF, which tracks a basket of cloud shares, was up 16%.
In late July, Zendesk missed adjusted earnings and income estimates for the primary time since its 2014 IPO. It was a interval of transition for Zendesk as the corporate was working to maneuver upmarket and offers had been taking longer to shut, JMP Securities wrote in a be aware to shoppers after the report.
As traders dump Zendesk and Momentive, there’s an rising likelihood that the deal does not get authorised, because it requires a vote by shareholders of each firms.
Final month, Zoom and Five9 abandoned their beforehand agreed upon $14.7 billion deal, after Five9 shareholders rejected it. The acquisition worth represented a small premium on the time for Five9, and that deteriorated additional as Zoom’s share worth dropped.
Equally, the declining worth within the Zendesk-Momentive transaction “is more likely to introduce uncertainty to the deal, which is topic to shareholder vote, and a significant overhang for Zendesk shares,” wrote B of A analysts.