10 ms·

Zendesk to be acquired

187 points by anotherhue 4y ago

dzonga 4y ago
this is interesting, seeing a PE firm acquire a public firm. seems the PE firm knows more than the public markets can account for. and sees opportunities to trim fat hard, given that they're paying a 34% premium. if I was a zendesk employee I would be worried
- hackitup7 4y ago
  This is the process by which a high growth unprofitable company becomes a lower growth profitable company. It can be ugly but it's a transition that every company ostensibly needs to make. We're going to see a lot of this as the market turns.
  - danpalmer 4y ago
    I agree that every company will likely slow in growth eventually, but I think the PE playbook is different. It's very clearly sacrificing growth, agility, ability to execute, and future potential, for the highest possible short term gains. I don't think that's something every company needs to go through.
  - riskneutral 4y ago
    > We're going to see a lot of this as the market turns. Not really. We saw a lot of LBO takeovers before the market turned, and Zendesk is one of those (it was planned 6 months ago). LBO activity is expected to slow down now (it already has). What you will likely see a rise in is a lot of companies cutting costs and going into their bunkers. You don't necessarily need to be taken over a PE firm in order to do that.
  - schnevets 4y ago
    Zendesk competitor ServiceNow ($88B Mkt cap) has stated their long-term strategy is upselling to massive customers who will use their more mature features (Operations Management, Security Operations, GRC). If ServiceNow is willing to leave crumbs on the table, I could see Zendesk marketing itself as the go-to firm for smaller IT departments.
- mathattack 4y ago
  There is a pretty well worn playbook in the PE world: Cut engineering and support, offshore what you can, and take a knife to suppliers. This can be hard for growth oriented management teams to pull off. Companies like IBM and CA do this too with the added financial benefit of being able to centralize most staff functions (finance, HR, etc) and leverage existing low cost locations. Of course this hurts existing customers. In reality it’s moving some of the surplus value generated by the company from the customers and employees back to the shareholders. It’s too complex issue to just say “It’s all good” or “It’s all bad.”
  - chrisfrantz 4y ago
    Don’t forget raise prices and make it more difficult to cancel.
  - kawsper 4y ago
    I only know of CA because they bought my beloved Flowdock and did exactly what you describe, and it didn't survive, forcing us to switch to Slack. I think Broadcom owns CA now.
    - mathattack 4y ago
      Yes - which of course compounds the issue.
  - jsdwarf 4y ago
    Exactly. Tech-oriented shareholders are longing for growth, so PE firms often acquire tech companies with a large customer base but no stellar growth story. Besides cutting costs, they also charge customers more. A classic PE game is to declare a widespread, but no longer innovative software product "end of life" just to charge more for "extended support" contracts. Customers often have said product deeply entrenched in their daily workflows and would inccur high customizing costs if they switch to a competitor. In the end, they are better off paying the support premium. From a funding perspective, PE firms also have an advantage compared to stock exchanges: because their assets are no longer traded daily, the volatility of these assets decreases. The asset value is maybe determined once a year for balance sheet purposes. This means that pension funds and other regulated investors can invest more in the PE sector than in stocks, because technically they are buying "low volatility assets".
- maltelandwehr 4y ago
  Permira is not that kind of VC. They normal for for growth opportunities. I guess they will try to expand the range of offerings from Zendesk and try to cross-sell these solutions to existing customers. Not necessarily bad for employees.
- boringg 4y ago
  I'll counter that I think they see a lot of long term value with the market having hemorrhaged a lot and that the PE firm is likely sitting on a lot of cash with very few good options in the asset marketplace. If I had money to buy a company that was putting up good numbers right now with growth oppt that would be a fantastic place to park cash.
cpdean 4y ago
this release is dated a month ago (2022-06-24)?
- mathattack 4y ago
  This was announced a month ago.
xnx 4y ago
Surprised it's not Salesforce
- hackitup7 4y ago
  Salesforce stock is down with the rest of the market and not as appealing as an acquisition tool as a result (they also paid a lot for slack). They also already play in Zendesk's space (eg service cloud) and tend to buy what they don't already have.
  - ubertaco 4y ago
    >and tend to buy what they _don't_ already have. Ehh....in the time I was there, they bought Tableau _and_ Datorama in the same month, and they already had reporting/analytics features (although not as in-depth). They also bought a dozen or so machine-learning companies that all did similar (or even identical) things over the span of the 5 years I worked there. Famously, they bought Heroku, and then completely ignored it (including internally -- there were efforts at one point to have Heroku be the "way forward" for internal development on PaaS providers, and they scrapped that entirely while keeping Heroku more-or-less running). I'd say Salesforce tends to buy whatever shiny thing gets Benioff's attention for the moment, usually because he talked to somebody at a conference. The guy tends to ram through quite a few questionable business decisions, and these days Bret Taylor's job as "co-CEO" is mostly "cleanup crew" for Benioff's various whims.
    - andscoop 4y ago
      > these days Bret Taylor's job as "co-CEO" is mostly "cleanup crew" for Benioff's various whims. Do you have examples of this?
      - ubertaco 4y ago
        Without going into much detail, the way some NFT stuff was handled internally is a big example, and then there was the company all-hands where Benioff berated some presenter on stage for having not-cool-enough shoes, and Bret had to spend a whole trying to spin it into a "haha, great joke buddy" sort of situation. Stuff like Benioff's "just the tip" tweet has always been who he is when his handlers don't have a tight grip on him. Bret Taylor's position seems like he's been put there because 1.) He's got _some_ engineering experience more recently than 1999, and 2.) Bret is less, uh, belligerent than Benioff.
nickjj 4y ago
Up until yesterday I didn't know Zendesk was written in Rails. They had a talk at RailsConf 2022[0] where they went over how they handle a billion requests a day with mostly a Rails monolith. I wonder why they're not brought up more when talking about large Rails apps. Is there an interesting (read: bad) history with them and Ruby? [0]: https://www.youtube.com/watch?v=mJw3al4Ms2o https://www.youtube.com/watch?v=mJw3al4Ms2o
- Beltalowda 4y ago
  I guess being a business app plays part; not a lot of consumers use it. Plus, I'm not sure if I ever met someone who used ZenDesk and actually liked it.
  - philliphaydon 4y ago
    Zendesk is one of those… what’s better? Products… used many over the years and while I don’t like zendesk i can’t think of anything better. There’s most likely is better but donno what is.
    - djyaz1200 4y ago
      Agree, anyone have a link to and/or list of competitors?
      - gantrion 4y ago
        I've used https://www.enchant.com/ https://www.enchant.com/ for two small companies over the last decade, and have been happy with them. Cheaper than Zendesk, and just much simpler to use.
        djyaz1200 4y ago
        Helpful, thank you!
    - julianeon 4y ago
emehex 4y ago
- Marketcap ATH (Feb 2021) = $18B - Marketcap @ Purchase = $10.2B That's pretty dramatic!
- deleted 4y ago
  [deleted]
- alexlmiller 4y ago
  even worse, they turned down a buyout offer back in February for $16B https://www.reuters.com/business/zendesk-rejects-16-bln-offer-private-equity-consortium-2022-02-10/ https://www.reuters.com/business/zendesk-rejects-16-bln-offe...
shmatt 4y ago
> Hellman & Friedman and Permira have arranged for debt and equity financing commitments So the way this is worded, this is a leveraged buy out? If so worst case scenario for anyone involved. Employees and customers. I wonder why the board would approve such an odd move for tech
- mathattack 4y ago
  It is an LBO. The board approves because they have to get the highest price, and LBOs usually pay cash. It’s a natural move when companies can’t invest in profitable growth any more. At that point it’s time to start returning money to shareholders who can invest it elsewhere. They have to change how they operate and management teams (and their playbooks) that optimize for growth are different than optimizing for returning cash to shareholders today. One long term way to do this is the IBM model of continuous underinvestment, layoffs and share buybacks. A company can accomplish this more quickly with an LBO and new management team.
deleted 4y ago
[deleted]
tgtweak 4y ago
They probably want to buy it for alpha. What else would a PE firm want with a high multiple, low growth pubic company.
- kvirani 4y ago
  Sorry what does alpha mean here?
  - SEJeff 4y ago
    In the context of trading I believe: https://www.investopedia.com/terms/a/alpha.asp https://www.investopedia.com/terms/a/alpha.asp
    - tgtweak 4y ago
      Correct - see my comment above for more explanation.
      - SEJeff 4y ago
        I work in electronic trading :)
- rakamotog 4y ago
  Alpha as I understand is risk adjusted return. Can you or anyone explain how acquiring a tech company can deliver better alpha?
  - tgtweak 4y ago
    I mean they want to buy it to acquire data about public companies so they can make market moves ahead of quarterly filings. If a company is using zendesk and there is an uptick in tickets or traffic - they can calculate growth based on that. There were PE firms buying email companies back in the day to look at # of emails from netflix for new subscriptions or cancellations - and they used that to determine if growth was up or down.
zionic 4y ago
Maybe their new owners won’t break their iOS SDK at a rate of 3-4x a year. And of course they have their GitHub issues closed, because they’re a support company. Emailing them gets an automated reply that you can only email them via your account holder’s email. Then when you do that you’re a dev playing telephone with another dev via a support agent.
- masklinn 4y ago
  > Maybe their new owners won’t break their iOS SDK at a rate of 3-4x a year. The iOS SDK certainly won't break when they shutter all development. Until they discover that they can save on cost by shuttering the API itself of course. It's an LBO by a private-equity firm, if you're a zendesk customer prepare your migration, it's all downhill from there.
goodcharles 4y ago
Hope the band can stay together! http://zendeskalternative.com/ http://zendeskalternative.com/
- droopyEyelids 4y ago
  If your support staff got used to Zendesk, the alternative is massive turnover and training a new workforce
- danr4 4y ago
  This is genius wow
LordLotus 4y ago
A competitor (LivePerson) also has got PE interest in the past few months. I wonder how this impacts the evaluation of startups like ADA chatbot.
blaydator 4y ago
As an enduser I don’t like Zendesk. I find it unfriendly to use. Like when you open a request you receive a response by email and you can reply it to. But if you want to open your request on the website (to check status or other details) you won’t find a single link to your ticket, not even to the home. I have to manually open my browser and navigate to the support page (if I am lucky enough to find it) of whatever product I am using is. How frustrating…

187 points by anotherhue 4y ago

this is interesting, seeing a PE firm acquire a public firm. seems the PE firm knows more than the public markets can account for. and sees opportunities to trim fat hard, given that they're paying a 34% premium. if I was a zendesk employee I would be worried

hackitup7 4y ago
This is the process by which a high growth unprofitable company becomes a lower growth profitable company. It can be ugly but it's a transition that every company ostensibly needs to make. We're going to see a lot of this as the market turns.
- danpalmer 4y ago
  I agree that every company will likely slow in growth eventually, but I think the PE playbook is different. It's very clearly sacrificing growth, agility, ability to execute, and future potential, for the highest possible short term gains. I don't think that's something every company needs to go through.
- riskneutral 4y ago
  > We're going to see a lot of this as the market turns. Not really. We saw a lot of LBO takeovers before the market turned, and Zendesk is one of those (it was planned 6 months ago). LBO activity is expected to slow down now (it already has). What you will likely see a rise in is a lot of companies cutting costs and going into their bunkers. You don't necessarily need to be taken over a PE firm in order to do that.
- schnevets 4y ago
  Zendesk competitor ServiceNow ($88B Mkt cap) has stated their long-term strategy is upselling to massive customers who will use their more mature features (Operations Management, Security Operations, GRC). If ServiceNow is willing to leave crumbs on the table, I could see Zendesk marketing itself as the go-to firm for smaller IT departments.
mathattack 4y ago
There is a pretty well worn playbook in the PE world: Cut engineering and support, offshore what you can, and take a knife to suppliers. This can be hard for growth oriented management teams to pull off. Companies like IBM and CA do this too with the added financial benefit of being able to centralize most staff functions (finance, HR, etc) and leverage existing low cost locations. Of course this hurts existing customers. In reality it’s moving some of the surplus value generated by the company from the customers and employees back to the shareholders. It’s too complex issue to just say “It’s all good” or “It’s all bad.”
- chrisfrantz 4y ago
  Don’t forget raise prices and make it more difficult to cancel.
- kawsper 4y ago
  I only know of CA because they bought my beloved Flowdock and did exactly what you describe, and it didn't survive, forcing us to switch to Slack. I think Broadcom owns CA now.
  - mathattack 4y ago
    Yes - which of course compounds the issue.
- jsdwarf 4y ago
  Exactly. Tech-oriented shareholders are longing for growth, so PE firms often acquire tech companies with a large customer base but no stellar growth story. Besides cutting costs, they also charge customers more. A classic PE game is to declare a widespread, but no longer innovative software product "end of life" just to charge more for "extended support" contracts. Customers often have said product deeply entrenched in their daily workflows and would inccur high customizing costs if they switch to a competitor. In the end, they are better off paying the support premium. From a funding perspective, PE firms also have an advantage compared to stock exchanges: because their assets are no longer traded daily, the volatility of these assets decreases. The asset value is maybe determined once a year for balance sheet purposes. This means that pension funds and other regulated investors can invest more in the PE sector than in stocks, because technically they are buying "low volatility assets".
maltelandwehr 4y ago
Permira is not that kind of VC. They normal for for growth opportunities. I guess they will try to expand the range of offerings from Zendesk and try to cross-sell these solutions to existing customers. Not necessarily bad for employees.
boringg 4y ago
I'll counter that I think they see a lot of long term value with the market having hemorrhaged a lot and that the PE firm is likely sitting on a lot of cash with very few good options in the asset marketplace. If I had money to buy a company that was putting up good numbers right now with growth oppt that would be a fantastic place to park cash.

cpdean 4y ago

this release is dated a month ago (2022-06-24)?

mathattack 4y ago
This was announced a month ago.

xnx 4y ago

Surprised it's not Salesforce

hackitup7 4y ago
Salesforce stock is down with the rest of the market and not as appealing as an acquisition tool as a result (they also paid a lot for slack). They also already play in Zendesk's space (eg service cloud) and tend to buy what they don't already have.
- ubertaco 4y ago
  >and tend to buy what they _don't_ already have. Ehh....in the time I was there, they bought Tableau _and_ Datorama in the same month, and they already had reporting/analytics features (although not as in-depth). They also bought a dozen or so machine-learning companies that all did similar (or even identical) things over the span of the 5 years I worked there. Famously, they bought Heroku, and then completely ignored it (including internally -- there were efforts at one point to have Heroku be the "way forward" for internal development on PaaS providers, and they scrapped that entirely while keeping Heroku more-or-less running). I'd say Salesforce tends to buy whatever shiny thing gets Benioff's attention for the moment, usually because he talked to somebody at a conference. The guy tends to ram through quite a few questionable business decisions, and these days Bret Taylor's job as "co-CEO" is mostly "cleanup crew" for Benioff's various whims.
  - andscoop 4y ago
    > these days Bret Taylor's job as "co-CEO" is mostly "cleanup crew" for Benioff's various whims. Do you have examples of this?
    - ubertaco 4y ago
      Without going into much detail, the way some NFT stuff was handled internally is a big example, and then there was the company all-hands where Benioff berated some presenter on stage for having not-cool-enough shoes, and Bret had to spend a whole trying to spin it into a "haha, great joke buddy" sort of situation. Stuff like Benioff's "just the tip" tweet has always been who he is when his handlers don't have a tight grip on him. Bret Taylor's position seems like he's been put there because 1.) He's got _some_ engineering experience more recently than 1999, and 2.) Bret is less, uh, belligerent than Benioff.

nickjj 4y ago

Up until yesterday I didn't know Zendesk was written in Rails. They had a talk at RailsConf 2022[0] where they went over how they handle a billion requests a day with mostly a Rails monolith. I wonder why they're not brought up more when talking about large Rails apps. Is there an interesting (read: bad) history with them and Ruby? [0]: https://www.youtube.com/watch?v=mJw3al4Ms2o https://www.youtube.com/watch?v=mJw3al4Ms2o

Beltalowda 4y ago
I guess being a business app plays part; not a lot of consumers use it. Plus, I'm not sure if I ever met someone who used ZenDesk and actually liked it.
- philliphaydon 4y ago
  Zendesk is one of those… what’s better? Products… used many over the years and while I don’t like zendesk i can’t think of anything better. There’s most likely is better but donno what is.
  - djyaz1200 4y ago
    Agree, anyone have a link to and/or list of competitors?
    - gantrion 4y ago
      I've used https://www.enchant.com/ https://www.enchant.com/ for two small companies over the last decade, and have been happy with them. Cheaper than Zendesk, and just much simpler to use.
      - djyaz1200 4y ago
        Helpful, thank you!
  - julianeon 4y ago

emehex 4y ago

- Marketcap ATH (Feb 2021) = $18B - Marketcap @ Purchase = $10.2B That's pretty dramatic!

deleted 4y ago
[deleted]
alexlmiller 4y ago
even worse, they turned down a buyout offer back in February for $16B https://www.reuters.com/business/zendesk-rejects-16-bln-offer-private-equity-consortium-2022-02-10/ https://www.reuters.com/business/zendesk-rejects-16-bln-offe...

shmatt 4y ago

> Hellman & Friedman and Permira have arranged for debt and equity financing commitments So the way this is worded, this is a leveraged buy out? If so worst case scenario for anyone involved. Employees and customers. I wonder why the board would approve such an odd move for tech

mathattack 4y ago
It is an LBO. The board approves because they have to get the highest price, and LBOs usually pay cash. It’s a natural move when companies can’t invest in profitable growth any more. At that point it’s time to start returning money to shareholders who can invest it elsewhere. They have to change how they operate and management teams (and their playbooks) that optimize for growth are different than optimizing for returning cash to shareholders today. One long term way to do this is the IBM model of continuous underinvestment, layoffs and share buybacks. A company can accomplish this more quickly with an LBO and new management team.

deleted 4y ago

[deleted]

tgtweak 4y ago

They probably want to buy it for alpha. What else would a PE firm want with a high multiple, low growth pubic company.

kvirani 4y ago
Sorry what does alpha mean here?
- SEJeff 4y ago
  In the context of trading I believe: https://www.investopedia.com/terms/a/alpha.asp https://www.investopedia.com/terms/a/alpha.asp
  - tgtweak 4y ago
    Correct - see my comment above for more explanation.
    - SEJeff 4y ago
      I work in electronic trading :)
rakamotog 4y ago
Alpha as I understand is risk adjusted return. Can you or anyone explain how acquiring a tech company can deliver better alpha?
- tgtweak 4y ago
  I mean they want to buy it to acquire data about public companies so they can make market moves ahead of quarterly filings. If a company is using zendesk and there is an uptick in tickets or traffic - they can calculate growth based on that. There were PE firms buying email companies back in the day to look at # of emails from netflix for new subscriptions or cancellations - and they used that to determine if growth was up or down.

zionic 4y ago

Maybe their new owners won’t break their iOS SDK at a rate of 3-4x a year. And of course they have their GitHub issues closed, because they’re a support company. Emailing them gets an automated reply that you can only email them via your account holder’s email. Then when you do that you’re a dev playing telephone with another dev via a support agent.

masklinn 4y ago
> Maybe their new owners won’t break their iOS SDK at a rate of 3-4x a year. The iOS SDK certainly won't break when they shutter all development. Until they discover that they can save on cost by shuttering the API itself of course. It's an LBO by a private-equity firm, if you're a zendesk customer prepare your migration, it's all downhill from there.

goodcharles 4y ago

Hope the band can stay together! http://zendeskalternative.com/ http://zendeskalternative.com/

droopyEyelids 4y ago
If your support staff got used to Zendesk, the alternative is massive turnover and training a new workforce
danr4 4y ago
This is genius wow

LordLotus 4y ago

A competitor (LivePerson) also has got PE interest in the past few months. I wonder how this impacts the evaluation of startups like ADA chatbot.

blaydator 4y ago

As an enduser I don’t like Zendesk. I find it unfriendly to use. Like when you open a request you receive a response by email and you can reply it to. But if you want to open your request on the website (to check status or other details) you won’t find a single link to your ticket, not even to the home. I have to manually open my browser and navigate to the support page (if I am lucky enough to find it) of whatever product I am using is. How frustrating…