Five9 shareholders nixed Zoom's proposed $14.7 billion acquisition as the deal came under increasing national security scrutiny.
Five9 shareholders canceled the all-stock deal this week, ending Zoom's bid to bolster its contact center offering by purchasing the San Ramon, Calif.-based company. Zoom later agreed to go along with the shareholder decision.
Announced in July, the deal ran into substantial obstacles in recent weeks. The U.S. government recently ratcheted up its investigation into the national security implications of the acquisition. Also, the advisory firm Institutional Shareholder Services (ISS) recommended Five9 shareholders vote against the move.
ISS cited Zoom's growth as a concern. In August, the company forecasted lower-than-expected earnings.
Zoom CEO Eric Yuan said not buying Five9 wouldn't end his company's plans to make its contact center offering more competitive.
"It was in no way foundational to the success of our platform, nor was it the only way for us to offer our customers a compelling contact center solution," Yuan said in a blog post.
Five9 CEO Rowan Trollope said he believed it was in his company's best interest to remain independent.
"Our business is strong, and we believe our future as a standalone company is bright," he said in a blog post.
The news came as a Justice Department-led panel known as Team Telecom prepared to investigate whether Zoom's ties to China could threaten U.S. national security. Former Team Telecom chairman Richard Sofield said the group would be very interested in how Zoom handles sensitive customer data.
Zoom's relationship with China, where it has product development operations, has been controversial for a while. In the early days of the pandemic, University of Toronto researchers found that Zoom was routing calls through servers in China -- a problem the company later fixed. In 2020, the Justice Department charged a China-based Zoom executive with sharing the personal information of Chinese dissidents with the government. Zoom fired the executive.
Zoom pursued the Five9 deal to offer a comprehensive product combining unified communications and a contact center as a service (CCaaS). Buying both services from a single vendor simplifies billing and reduces the time spent getting multiple vendor products to work together.
Colin Taylor, CEO of The Taylor Reach Group, said he expected Five9 to continue seeking a buyer that provides UCaaS. He noted that Five9 had been excluded from bids in the past because it didn't have such services.
"I think that [UCaaS] will continue to be a weakness for [Five9's] offering, but many of their competitors face the same challenge today," Taylor said.
Metrigy analyst Irwin Lazar said he would not be surprised if Zoom made another attempt to buy Five9 because the two companies' products align so well.
Mike Gleason is a reporter covering unified communications and collaboration tools. He previously covered communities in the MetroWest region of Massachusetts for the Milford Daily News, Walpole Times, Sharon Advocate and Medfield Press. He has also worked for newspapers in central Massachusetts and southwestern Vermont and served as a local editor for Patch. He can be found on Twitter at @MGleason_TT.