Property of Zendesk saga took several new turns this week, with an outside investor, Jana Partners, opposing the company, a review of its strategic options coming to an end, and the business software company deciding to remain independent.
Now valued at less than $10 billion, Zendesk has been making more noise in recent months than you’d expect from a company of its size. But after announcing that it would buy Momentive (SurveyMonkey) for more than $4 billion last year, Zendesk has engaged in a fierce battle with outside investors, which has proven to be recurring news.
While Jana wasn’t overly enamored with the SurveyMonkey deal (to say the least), Zendesk believed it was a way to drive revenue growth and drive the company away from purely help desk-related tasks — and, to a lesser extent, customer relationship management or CRM. – in the customer experience market. Zendesk suggested in an investor presentation that the deal could help the company grow revenue from about $1.39 billion, the run rate it had in November 2021, to $3.5 billion by 2024, stressing Zendesk that it is ahead of schedule.
Whatever Zendesk sold related to Momentive, Jana didn’t buy, and the tone of the conversation between the company and its shareholder has only grown tense over time. Zendesk has done its own thing, ignoring Jana’s increasingly stringent demands outlined in letters to the company and in public statements. That includes this week’s threat of a lawsuit if Zendesk doesn’t immediately call a shareholders’ meeting.
Jana wants Zendesk to sell. Earlier this year, Zendesk turned down a $17 billion offer to sell the company, which, as we wrote at the time, made Jana “angry.” The offer came from a consortium of private equity firms, and it’s easy to imagine why founder and CEO Mikkel Svane, who built Zendesk from scratch, didn’t want to go down that road. Emotion aside, an analysis by Marketingwithanoy at the time concluded that the deal undervalued the company.
It should come as no surprise that Zendesk ended up in some sort of sales process. We’ve seen some major business deals in recent years, including Broadcom’s recent announcement to buy VMware for $61 billion, which is still under a go-shop provision and subject to regulatory oversight. Before that were some major software deals that closed, including Salesforce buying Slack for nearly $28 billion, Oracle buying Cerner for the same price, and Microsoft buying Nuance Communications for $19 billion.
It is worth noting that the above deals took place in a different economic environment. Whether justified, markets have retreated and VC dollars are tightening. Valuations are down everywhere. As such, it would make sense that even if Zendesk wanted to sell itself, now might not be the right time to do it.
The company agrees. Zendesk had a chance to take the money and run away, but it believed it was actually worth more than the offer — at least at the time. Does the rejected $17 billion bid from earlier this year seem more appealing given the ongoing declines in the value of tech companies? Sure, but enough to question the decision to decline? Let’s find out.