Seeking Alpha • Jul 08
What Is Zendesk Stock's Outlook After Acquisition?
Zendesk stock will be acquired for $77.50 per share.
The company had previously rejected an offer of around $127 per share.
The company is still growing at a strong 30% rate.
The stock ironically looks more attractive if the deal falls apart.
Zendesk (ZEN) does want to get acquired after all. After declining a takeout offer of around $127 per share earlier in the year, ZEN has agreed to be acquired for $77.50 per share. The discrepancy does need to be taken into context - tech stocks overall have been thrashed since February. In this report, I look at the company's key metrics and discuss what shareholders can look forward to moving forward.
ZEN Stock Price
ZEN peaked above $150 per share, rejected a takeout offer rumored to be between $127 and $132 per share in February, and crashed as low as $54 per share.
Data by YCharts
The stock has since traded up very close to the $77.50 per share acquisition price.
ZEN Stock Key Metrics
ZEN has been a consistent grower in the enterprise space, with revenues growing 30% in the latest quarter. While ZEN is not yet profitable on a non-GAAP basis, it has generated non-GAAP profits including a 5.2% non-GAAP operating margin in the latest quarter.
ZEN has guided for the next quarter to see 30% revenue growth and for the full year to see up to 27.7% revenue growth.
ZEN has been able to power its consistent growth through impressive net expansion rates that stood at 121% in the latest quarter.
2022 Q1 Shareholder Letter
ZEN had $1.6 billion of cash and marketable securities versus $1.1 billion of convertible notes. The convertible notes mature in 2025, carry a 0.625% interest rate, and are convertible at a price of $164.17 per share (net of capped call transactions). The low interest cost of the debt plus the overall net cash position highlight the strong balance sheet position.
Who Acquired Zendesk?
On June 24, 2022, ZEN announced that it was being acquired by an investor group led by Permira and Hellman & Friedman LLC ("H&F") in an all-cash transaction valued at $10.2 billion - equating to a purchase price of $77.50 per share. That deal represented a 34% premium to where ZEN traded the day prior to the announcement.
How Will Acquisition Impact ZEN Investors?
If the deal is completed, then ZEN shareholders stand to receive $77.50 per share in cash. With the stock currently trading around $74.71 per share, shareholders might be able to earn a 3.7% return if held through completion. ZEN shareholders still need to vote on the deal, which some might feel has some chance of losing approval due to the fact that the company previously had an offer in the $127 range. But that offer was in February, and since then, many other tech stocks besides ZEN have fallen by a large magnitude as well.
What Is The Future Of Zendesk?
I see two paths forward for the stock. The more obvious path is for shareholders to approve the deal - at around 5.5x sales, the purchase price looks reasonable considering where other tech names trade.