After several bruising months, industry analysts see Zendesk sale as pressure release

When Zendesk announced it had been acquired by a consortium of private equity firms on Friday for $10.2 billion, it seemed a sudden and jarring end for a company that had once pioneered customer service in the cloud, especially since the organization had recently vowed to stay independent.

But there had been a lot going on with Zendesk leading up to Friday’s announcement, including a battle with activist investor Jana Partners over a number of issues. For starters, the company turned down a $17 billion offer in February, which you will note is substantially higher than the final selling price, and Jana was not happy with that outcome.

At the time, however, Zendesk concluded it was worth far more. A TechCrunch analysis concurred. But the market has shifted dramatically in the months since, and the company’s value plunged.

“It does feel like something dramatic needed to happen to change the trajectory they’ve been on the last few years, and maybe this is it.” Brent Leary, principal analyst at CRM Essentials

If that weren’t enough, the company was also trying to expand its offerings by buying Survey Monkey parent Momentive in a $4.1 billion deal. That attempt was quashed by investors led by Jana. Zendesk saw the acquisition as an opportunity to expand the platform into customer experience, projecting much faster revenue growth, but investors didn’t see an obvious fit and were displeased by the cost.

Further, Jana was attempting to take over board seats and was pressuring Zendesk to call a delayed annual meeting to bring that particular issue to a head.

The whole ordeal came to a conclusion on Friday. We spoke to several industry analysts, who, for the most part, given the events leading up to the sale, were not surprised by this ending. Most suggested it could bring some relief to the beleaguered company.

Laurie McCabe, co-founder at SMB Group, believes that Zendesk finally yielded to all the external pressure it had been under — and that perhaps Zendesk’s co-founder and CEO had simply had enough.

“Reading between the lines, it may be that Zendesk’s CEO, Mikkel Svane, was tired of all of this meddling and took the latest offer. The lead private equity firm, Hellman & Friedman, has a lot of strong brands under its belt, so it will be interesting to see where they go with Zendesk,” she said.

Brent Leary, principal analyst at CRM Essentials, saw a company falling behind in a changing market and in need of a drastic change. “At one point Zendesk was the pacesetter for cloud-based customer service. But they lost momentum when the industry moved from siloed apps in the cloud to platform offerings in the cloud,” Leary told TechCrunch.

“And while their competitors were able to make the transition either through organic growth or successful acquisition/integration execution, Zendesk couldn’t match them. So it does feel like something dramatic needed to happen to change the trajectory they’ve been on the last few years, and maybe this is it.”

Anand Thaker, a marketing industry consultant, said that given slowing growth and Jana’s pressure, it seemed inevitable that a sale to private equity would be the outcome. He agreed with McCabe that it’s a reasonable landing spot under the circumstances.

“If Zendesk remained public, it could have gotten pummeled, and that would have been worse for everyone. At least these folks who acquired them paid a premium and have some experience and capital available,” he said.

Holger Mueller, an analyst at Constellation Research, agreed with Thaker’s assertion that going private could be beneficial for the company at this point, allowing it to escape the pressure of quarterly reporting (at least to public investors).

“Along those lines, Zendesk going private is an opportunity for the vendor to build a more innovative, differentiated and powerful solution to the CX conundrum as a private company. High valuations come with a lot of pressure, so we will see how Zendesk will do, and how long it will take,” he said.

Zendesk has been through a bruising fight, and analysts believe the acquisition could be an opportunity to focus on product (and perhaps platform) innovation. Maybe now, as Zendesk goes private, it can take a deep breath and get back to work outside of the white-hot public investing spotlight where activist investors can lurk, sometimes wreaking havoc.