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Zendesk Shareholder Objects to Company Sale to Private Equity Buyers

Closeup of an empty conference room before meeting

Zendesk will be acquired by private equity firms Hellman & Friedman and Permira for $10.2 billion, but shareholder Light Street Capital plans to oppose the deal. Moreover, Light Street wants Zendesk to expand its board and replace its CEO, SeekingAlpha reported.

The pending M&A deal, announced in June 2022, surfaced less than one month after Zendesk's board completed a "Strategic Review" of the business -- stating at the time that the company would remain independent and would not be sold.

This is technology M&A deal number 577 that ChannelE2E has covered so far in 2022. See more than 1,000 technology M&A deals involving MSPs, MSSPs & IT service providers listed here.

Describing the about-face that led to the company sale, Carl Bass, lead independent director, Zendesk, said:

“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.”

The offer represents a premium of approximately 34% over Zendesk’s closing stock price on June 23, 2022. But it's still far below the $15.25 billion valuation that Zendesk had in April 2022. Hence, Light Street Capital's objection to the pending deal.

Zendesk Business Turbulence: The Timeline

Although Zendesk is growing, the cloud software provider faces concerns from shareholder activists who believe the company has been mismanaged.

Among the Zendesk developments and factoids to keep in mind:

How Zendesk Explored Company Sale

Amid that backdrop, Qatalyst Partners -- working on behalf of Zendesk -- in early 2022 reached out to software companies and private equity firms to explore a potential Zendesk company sale, Bloomberg said. Private equity firms such as Thoma Bravo, Hellman & Friedman, Advent International Corp. and Permira previously expressed interest in the business.

We don't know if additional private equity firms that have MSP software experience -- names like Insight Partners, Summit Partners and Vista Equity Partners, among others -- gave Zendesk a look. Many of those private equity firms currently back sales automation software companies. Examples include:

In terms of strategic software companies, Adobe was not interested in buying Zendesk, CNBC reported in February 2022.

Zendesk Business and Revenue History, Cloud Software Evolution

Zendesk has grown through direct sales, channel partners and via acquisitions. Key moves include:

  • 2019: Zendesk acquired Smooch Technologies Holdings for omnichannel communications in 2019. The result: Zendesk’s core IT service management and CRM platforms can connect more easily and seamlessly with customers through apps like WhatsApp, WeChat, Line, and Messenger, along with email and SMS.
  • 2018: Zendesk acquired FutureSimple and Base, a salesforce automation software platform for small businesses. The move further blurred the line between IT service management (ITSM) and sales team automation tools in the SMB market — a major trend involving multiple vendors and customer verticals.

Meanwhile, Zendesk has continued to grow top-line revenues, though bottom-line profits are a different story. For the quarter ended March 31, 2022:

  • Zendesk's revenue was $388.3 million, up 30% compared to the corresponding quarter in 2021.
  • GAAP net loss was $66.9 million.

And for the  quarter ending June 30, 2022, Zendesk expects to report revenue in the range of $402 million to $408 million, the company stated in April 2022.

Blog originally posted April 19, 2022. Updated thereafter to reflect more M&A chatter and the end of the potential sale process.

Joe Panettieri

Joe Panettieri is co-founder & editorial director of MSSP Alert and ChannelE2E, the two leading news & analysis sites for managed service providers in the cybersecurity market.