Five9 (FIVN) and Zoom Announce Mega Merger, Deal Looks Solid

Zoom Video Communications (ZM) plans to acquire Five9 (FIVN) in an all-stock transaction valued at $14.7 billion. Zoom and Five9 stocks have reacted differently to the news about the merger. Is the Zoom and Five9 deal better for Five9 shareholders than it is for Zoom investors? Should you buy FIVN stock after the acquisition news?

Five9 stock rose more than 8 percent in the premarket trading session on July 19, while Zoom stock is down 2 percent.

On July 19, Zoom and Five9 announced that they are combining in an all-stock deal. According to the transaction, Five9 shareholders will get 0.5533 shares of Zoom stock for every Five9 share held. This will roughly come out to be $200.28 per share, which represents a 13 percent premium to Five9’s closing stock price on July 16.

Once the transaction is completed, Five9 is expected to be an operating unit of Zoom and its CEO Rowan Trollope will become a president of Zoom. He will continue serving as the CEO of Five9 and report to Eric Yuan. This is Zoom's first billion-dollar acquisition as it seeks to grow beyond video conferencing. It will instantly become a significant player in the call center software market. Zoom has been looking for ways to expand as students start to return to the school and employees return to the office amid the COVID-19 pandemic.

The companies expect to close the transaction in the first half of 2022. However, the deal is subject to regulatory approvals and other customary closing conditions.

According to MarketBeat, analysts' average target price for FIVN stock is $198.35, which is 12 percent above its current price. Among the 17 analysts tracking FIVN, 12 recommend a buy, four recommend a hold, and one recommends a sell. Their highest target price of $220 is 24 percent above the stock's current price, while their lowest target of $122 is 31 percent below.

Five9 offers cloud-based software for contact centers, which is a market the companies forecast at $24 billion. Together, Five9 and Zoom aim to compete better with companies like RingCentral, Vonage, and Genesys, to enable clients to provide customer service over the internet.

Five9 has grown rapidly since the beginning of 2020. The demand increased for call center technology that allows representatives to work from home. Companies had to rapidly adapt to different types of cloud software, including their contact centers. In May, Five9 said that it had signed two of its largest deals in the first quarter, which is expected to generate over $20 million combined annually. The company’s customers include Lululemon Athletica, Olympus, Citrix, and Under Armour.

In the first quarter, Five9’s revenue grew 45 percent YoY to $137.9 million. For 2021, the company expects revenue to be in the range of $548.5 million–$551.5 million with an adjusted EPS of $0.89–$0.93.

Currently, Five9 is publicly traded on the Nasdaq under the ticker symbol "FIVN."