When someone comes knocking with $17B you ought to hear them out. In February 2021 Zendesk’s shareholders rejected the offer from the PE consortium to take them private, believing that the business was undervalued. And at the time, many analysts agreed with them because Zendesk was in a strong place in the market. This, in turn, unleashed a chain of events that followed.
Fast forward a few months, and the company is taken private by the consortium of PE firms led by Hellman & Friedman and Permira’s for a whopping $7B discount. This was made possible due to management disagreement with a few shareholders who disagreed with the rejection of a $17B offer and the direction in which the proposed acquisition of SurveyMonkey led the company.
Already disgruntled investors were more than happy to tank the $4.1B acquisition attempt of SurveyMonkey. They did not like the management’s proposed plan that saw SurveyMonkey and the broader Momentive business to push the company’s core customer service focus into a wider customer experience market. By far, the most deserving were activist investors, and even though they had a rather small stake in the company, they managed to get 90% of the votes in their favor. Consequently, this turn of events led to the massive haircut on the original offer and showed once again how powerful private equity can be. The private equity consortium used this investor drama, and overall drop in the valuations for tech companies to offer a new steeply discounted price tag for a virtually unchanged business somewhat affected by all the drama.
All of this begs a simple question, why was private equity the best way for Zendesk to move forward? First, PE managers tend to have a longer-term focus than most actors in the public equity space.Therefore, PE firms can focus on finding the right add-ons for Zendesk which will achieve the desired growth in the long run. Second, the agility and freedom that PE managers possess. Compared to the public markets PE managers don’t have shareholders breathing down their necks every quarter. Lastly, given overall macroeconomic conditions, private equity is in a better place to create more value during a crisis than public equity. This is supported by the fact that, on average, PE-backed firms did better than standalone companies during both crises in the 2000s. Let us not forget about the $7B discount, which gives them freedom and a head start to slowly build the company in these turbulent times. The bottom line, private equity had one of the best years during the dot com crash, and the ‘08 financial crises and this deal is poised to achieve the same result.
