Zendesk punished by investors after vowing to remain independent

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The Zendesk ownership saga took several new turns this week, with an external investor, Jana Partners, agitating against the company, a review of its strategic options coming to a close, and the business software company deciding to stay independent.

Now worth less than $10 billion, Zendesk has made more noise in recent months than you would expect from a company of its size. But after announcing that it would buy Momentive (SurveyMonkey) for more than $4 billion last year, Zendesk has been in a bruising fight with external investors that has proven to be recurring headline fodder.

Even though Jana wasn’t terribly enamored with the SurveyMonkey deal (to put it mildly), Zendesk believed it was a way to drive revenue growth and push the company from purely help desk-related tasks – and, to a smaller degree, customer relationship management, or CRM – into the customer experience market. Zendesk suggested in an investor presentation that the deal could help it grow revenue from around $1.39 billion, the run rate it was at in November 2021, to $3.5 billion by 2024, which Zendesk emphasized was ahead of schedule.

Whatever Zendesk was selling regarding Momentive, however, Jana wasn’t buying, and the tenor of the conversation between the company and its shareholder has only become more strained over time. Zendesk has done its own thing, ignoring Jana’s increasingly stringent demands outlined in letters to the company and in public statements. That includes this week’s threat of a lawsuit if Zendesk failed to call a stockholder meeting immediately.

Jana wants Zendesk to sell. Earlier this year, Zendesk turned down a $17 billion offer to sell the company, which, as we wrote at the time, “angered” Jana. The offer came from a consortium of private equity firms, and it is easy to imagine why founder and CEO Mikkel Svane, who built Zendesk from scratch, did not want to take that route. Emotion aside, an analysis by TechCrunch at the time concluded that the deal undervalued the company.

That Zendesk wound up in a sale process of sorts should not surprise. We’ve seen some big enterprise deals in the last couple of years, including Broadcom’s recent announcement to buy VMware for $61 billion, which is still under a go-shop provision and subject to regulatory scrutiny. Prior to that, some big software deals that closed include Salesforce buying Slack for almost $28 billion, Oracle buying Cerner for the same price, and Microsoft buying Nuance Communications for $19 billion

It’s worth noting that the above deals happened in a different economic environment. Whether it’s warranted, markets have retreated and VC dollars are getting tighter. Valuations are down all around. As such, it would make sense that even if Zendesk wanted to sell itself, now may not be a particularly good time to do it.

The company agrees. Zendesk had a chance to take the money and run, but it believed it was actually worth more than the offer — at least at the time. Does the spurned $17 billion offer from earlier this year appear more attractive in light of continued declines in the value of technology companies? Sure, but enough to put the decision to decline in doubt? Let’s find out.

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