Zoom, which is buying cloud contact center Five9, has now inserted itself into a mind-blowing year for M&A in large part thanks to high cash positions coming out of the COVID-19 pandemic and still rock-bottom interest rates.
About $1.9 trillion of deal value for U.S.-based acquirers has been announced so far this year, according to new data from Goldman Sachs. The level represents the highest volume of M&A at this point in the year since at least 2000.
“The 2020 recession led to robust debt and equity issuance. Now, cash balances are high and S&P 500 managements are deploying some of the cash on M&A deals,” said Goldman Sachs chief U.S. equity strategist David Kostin.
The stats underlying the M&A onslaught underscores the frenzy to scoop up attractive targets.
Zoom said late Sunday it will acquire cloud contact center Five9 (FIVN) for a whopping $14.7 billion in an all-stock transaction. The purchase price marks a 24% premium to Five9’s Friday closing market cap, per Yahoo Finance Plus data. The deal is expected to boost Zoom’s presence with corporations as it seeks to expand its popular Zoom Phone.
Five9 shares rose 7.3% in pre-market trading Monday. Zoom shares fell 3%, a typical reaction by investors to all-stock transactions.
“Enterprises communicate with their customers primarily through the contact center, and we believe this acquisition creates a leading customer engagement platform that will help redefine how companies of all sizes connect with their customers,” Zoom founder and CEO Eric Yuan said in a statement.
Besides Zoom’s large new deal, Discovery’s $43 billion merger with AT&T’s WarnerMedia remains the year’s biggest headline-grabber. Meanwhile, SPAC [special purpose acquisition company] transactions have padded the M&A data. Goldman notes that 154 de-SPAC mergers have been announced in 2021, absorbing $54 billion of SPAC equity capital and creating $384 billion of deal enterprise value.
An M&A slowdown
The average $100 million-plus deal in 2021 has been struck at a 44% premium to pre-bid price, according to Goldman Sachs. In the last two decades, the mean deal premium to pre-bid price has tallied 32%.
Goldman forecasts S&P 500 companies will spend $324 billion in cash on M&A in 2021, up 45% from a year ago. Next year dealmaking is seen slowing to a 5% growth rate to $340 billion amid potential regulatory changes from the Biden administration.
“President Biden’s new antitrust regime has many implications,” Kostin said. “It will be more onerous to complete deals as regulators scrutinize transactions. Hurdle rates for mergers will be higher and deal break fees greater than they would have been prior to the Executive Order. If strategic buyers take a step back, it could create an opportunity for private equity firms.”
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