Activist Investor Pushes Five9 to Explore a Sale, But is a Deal in the Cards?
Five9, a leading provider of cloud-based contact center software, has found itself in the crosshairs of activist investor Anson Funds. Despite a recent rejection of a potential acquisition offer, Anson is reportedly urging the company to explore a sale. The move comes amidst slowing growth for Five9 and a market perception that the company could be vulnerable to Artificial Intelligence disruptions. However, this analysis overlooks Five9’s role as a developer and provider of AI-powered contact center solutions, positioning it to potentially capitalize on the growing demand for such technology.
Key Takeaways:
- Anson Funds, an activist investor with a growing focus on technology, has acquired a stake in Five9. This firm has a reputation for building value through strategic engagement with companies.
- Although Five9 rejected a rumored acquisition offer from Zoom, Anson is reportedly advocating for the company to explore a sale.
- While Five9’s recent growth has slowed, the company is well-positioned to benefit from the increasing adoption of AI in contact centers.
- The potential for a sale is further fueled by Five9’s current leadership and the company’s history with acquisition offers.
Anson Funds Takes a Position
Anson Funds, founded in 2007 and boasting $1.9 billion in assets, recently hired Sagar Gupta, a former senior analyst and head of technology, media, and telecommunications investing at Legion Partners, to spearhead its activism strategy. This move signaled a shift for the fund, which had previously been known for its multi-strategy approach rather than activism.
In a surprising move, Anson acquired a position in Five9 in July 2024, prompting speculation about their intentions. This development follows a long history of attempted acquisitions by Zoom, which first proposed a $14.7 billion deal in 2021, but ultimately failed to secure shareholder approval.
Five9 Navigates Slowing Growth and AI Fears
Five9’s recent performance has been mixed. While the company remains a leader in the cloud contact center space, its growth rate has slowed to 17% in 2023, down from 40% in 2021. This, combined with a broad market concern about AI potentially disrupting the contact center industry, has led to a decline in Five9’s stock price. However, this perception is flawed.
Five9 is not simply a beneficiary of the contact center industry but also a key player in its evolution. The company develops and delivers AI-powered solutions for contact centers, allowing clients to augment or replace human agents with AI technology. This puts Five9 at the forefront of a trend that is expected to significantly expand the total addressable market for cloud contact center solutions.
A Sale: A Possible Outcome, but Not the Only One
While Anson is reportedly pushing for a sale of Five9, the company may ultimately decide to pursue a standalone future. There are several reasons why a sale might be considered.
- Leadership: Five9’s current chairman and CEO, Mike Burkland, was at the helm in 2021 when the initial Zoom acquisition was proposed. This suggests a potential openness to a sale.
- Severance Agreement: Five9 has a change of control severance agreement that has been renewed for shorter periods, potentially indicating a change in perspective towards its long-term viability as an independent entity.
- Board Composition: The upcoming election of the lead independent director, a position held for the past 10 years, could influence the board’s stance on a potential sale.
However, it’s important to note that Five9 has a unique position as a pure-play cloud contact center provider, offering substantial opportunity for growth. The company can potentially achieve over 20% annual growth, particularly as the AI thesis plays out. The shift towards "software as a service" is also expected to boost Five9’s gross margins and improve operating margins.
Potential Acquirers
The potential acquirers for Five9 are limited to strategic players who see value in the company’s technology and market position.
- Zoom: Despite the previous failed attempts, Zoom remains a potential acquirer, particularly considering its strong cash position and stated interest in the contact center space.
- Salesforce: Salesforce, another major player in the CRM market, could find value in integrating Five9’s contact center capabilities into its own platform.
- ServiceNow: ServiceNow, a leading provider of IT service management solutions, might seek to expand into the contact center market through an acquisition of Five9.
The Future of Five9: A Balancing Act
The future of Five9 remains in flux. Anson Funds, through their activist engagement, has thrown a wrench into the company’s strategy, raising the possibility of a sale. However, Five9’s current leadership and their potential reluctance to part with a company in a position of strength, suggest that a standalone future is also plausible.
Ultimately, the choice will depend on a careful analysis of the potential benefits of a sale against the opportunities for continued growth and improvement as an independent company. Five9’s decision will have significant implications for the company’s stakeholders and the broader cloud contact center market.
