In late May, Sylebra Capital seized stakes of 8.7 percent in RingCentral and 12.4 percent in 8×8.
A coincidence? Perhaps. Yet, the filings for both deals use identical language that stipulates how Sylebra will lobby each business to consider strategic acquisitions.
As a result, murmurs of a RingCentral-8×8 merger sent the CX web into overdrive, and not for the first time.
Indeed, an unnamed source told the respected finance website Investing.com last November that RingCentral was looking into snapping up 8×8.
Such a move may open the door for RingCentral to make share gains, consolidate the market, and unlock cross-selling opportunities.
For instance, RingCentral could cross-sell 8×8’s contact center platform to its UCaaS customers.
Currently, it cross-sells NICE, a partnership that results in RingCentral receiving only a slither of the business it wins.
With a CCaaS platform of its own, RingCentral could increase its contact center revenues significantly.
Yet, there is a lot of overlap within both portfolios, and the analysts that took part in our latest BIG News show were not convinced that a merger is on the cards.
The More Likely Route for RingCentral
Some analysts believe activist investor involvement is more likely to result in increased cooperation between RingCentral and 8×8 rather than a merger.
Liz Miller, VP and Principal Analyst at Constellation Research, is one such analyst.
To emphasize this point, she starts by noting how Sylebra is self-styled as an activist investor group.
“What they have done with a lot of their previous acquisitions is to look for efficiencies and scale,” she says.
RingCentral and 8×8 have already made such moves, laying off ten and seven percent of their workforces, respectively, in recent months.
Since, both have maintained double-digit growth. Now – according to Miller – Sylebra may say: “Great. So, how are we going to maintain that over the next eight quarters?”
From there, Sylebra may ask RingCentral and 8×8: “What are you doing, and can you do it together?”
Making this point, Miller states:
That feels like the direction that an activist investor is going to take these conversations. As opposed to: “Hey, why don’t we just combine these two stocks together?”
Nonetheless, many vendors in the CX space would struggle with that line of questioning. Indeed, the market is perhaps a little prone to navel-gazing. As Miller continues:
“We tend to look at what is happening in the very insular areas of CCaaS, UCaaS, and CPaaS, at what our competitors and neighbors are doing,” Miller continued.
An activist investor will say: “Wake up! Things are happening outside of this space.
“These conversations will be how can we make our stocks jump three- or four-fold.”
As such, having an outsider come in and ask those challenging questions is likely a positive. Although, there are reasonable cautions that RingCentral and 8×8 should stay wary of.
A Word of Caution
While Michael Fauscette, Founder, CEO & Chief Analyst at Arion Research, sees the value of investor-driven cooperation between RingCentral and 8×8, he also urges caution.
Fauscette says:
What makes me nervous when you see this happen is: do they have the expertise to lead that conversation, and will they admit that they don’t when they don’t? That is the one risk.
“Take a random business person who is really smart; they may be able to figure it out just fine. But, then again, if they don’t know anything about the space, it is a little troubling.”
Indeed, such a move must be more than just a numbers game. Those at the top of RingCentral will need to share a vision for putting these portfolios together in a different way that excites end-users.
Making this point, Rebecca Wetteman, Principal at Valoir, adds:
They must think about what is the greater value that not only delivers on a spreadsheet or stock market but in terms of overall customer value… Customers will need a lot of help stitching these different pieces together.
Unfortunately, for now, such cooperation is only hearsay. Although, it will be interesting to keep an eagle eye on both businesses as Sylebra makes its voice heard.
With activist investors at Salesforce already shaking things up, some may already have an idea of what this might look like.
