When someone knocks on your door waving a check for $17 billion, you have to let them in for a chat. But when presented with that very offer this week from a consortium of private equity firms, Zendesk’s board rejected the deal on grounds that it undervalued the company.
In a statement, they said they were duty-bound to review such an offer, but after doing so, they felt confident about rejecting it:
“Consistent with its fiduciary obligations, after careful review and consideration conducted in consultation with its independent financial and legal advisors, the Board concluded that this non-binding proposal significantly undervalues the Company and is not in the best interests of the Company and its shareholders.”
The Wall Street Journal reports that the company could find itself in a shareholder battle concerning private equity interest in its business, along with its efforts to close the deal for the company that owns SurveyMonkey, so the matter may not be closed with management’s dismissal of this particular offering.
Jesús Hoyos, principal consultant at Cx2 Advisory, which monitors the customer experience (CX) market in which Zendesk competes, said the company made the right decision rebuffing the offer because it has plenty of opportunity to expand its CX market.
“It was wise to reject the takeover bid,” Hoyos told TechCrunch. “Their expansion in Latin America has been a success due to their integration with WhatsApp and excellent marketing. I see them being worth more than $17 billion in the future.”
Zendesk’s core product is help desk software, but it has expanded into other areas in recent years. It recently released the Zendesk Suite, which bundles Zendesk Support, Guide, Chat and Talk into a single package. It’s been doing well, with the company reporting that it accounted for $500 million in ARR and 35% of total ARR in its first year.
Last fall, the company purchased Momentive, owner of SurveyMonkey, giving it a more direct path into customer experience. Zendesk spent more than $4 billion for Momentive, betting on the company as a way to expand its market in the future. That projected growth is a big part of why it rejected the private equity offer, but it’s also a cause of controversy among activist investors who don’t like the direction Momentive would take the company.