Activist investment firm Sylebra Capital has taken out significant stakes in RingCentral and 8×8.
The Hong-Kong-based business now controls an 8.7 percent share of RingCentral, worth approximately $250MN.
Meanwhile, it has also swept up a 12.4 percent stake in 8×8, valued at $60MN.
Following the news on Friday, both enterprise communications vendors enjoyed a 15 percent uptick in their stock value.
Of course, markets often react well to large investments in a business.
Yet, the stock surge may also stem from suggestions within the filings that Sylebra will lobby both businesses to consider strategic transactions.
Indeed, the filings for both deals include “identical language” that underlines the intent to engage with management about their M&A plans – according to Barron’s, a reputable US finance magazine.
Combine this with the synchronized timing of both investments, and it seems that Sylebra Capital may urge both businesses to join forces.
Nevertheless, that is not a given, as neither filing directly references the other company.
For its part, RingCentral released a statement that noted:
We look forward to engaging with them, as we do all shareholders.
However, this isn’t the first time that speculation of a RingCentral-8×8 merger has surfaced.
Last November, an unnamed source alerted Investing.com – a respected finance website – to the possibility of RingCentral rolling up 8×8.
Those rumors soon wilted away, with suggestions that RingCentral’s management team had simply been exploring its options.
However, it is perhaps back on the table, with a possible deal having potential benefits for both the CX stalwarts.
Would a RingCentral and 8×8 Merger Make Sense?
RingCentral and 8×8 suffered stock drops of 75 percent in 2022.
Yet, in leveraging each other’s portfolios, the businesses may unlock more opportunities to drive further share gains, which is tricky in a mature enterprise communications market.
Indeed, RingCentral would gain a native CCaaS platform through the acquisition, which it can converge with its UCaaS solution to seize upon a prominent market trend.
Currently, the vendor resells NICE CXone to its contact center base, meaning it only takes a slither of the CCaaS revenue it generates. An 8×8 acquisition could change that.
Moreover, with less than 30 percent of businesses moving to a cloud contact center model, RingCentral has room to expand its CCaaS exploits.
In addition, RingCentral may pick up a profitable business by acquiring 8×8, a vendor aiming to achieve a ten percent growth in its profitability this fiscal year.
However, such consolidation is perhaps also critical for long-term success in enterprise communications – especially after Avaya’s restructure, Lifesize’s bankruptcy filing, and Twilio’s financial woes.
As such, Sylebra Capital may see an opportunity to grow RingCentral further, underline its status as a communications stalwart, and seize more business as competitors struggle.
For all these reasons, a RingCentral-8×8 merger makes sense – yet some possible determents may stop any possible plans in their tracks.
Potential Drawbacks to a Possible Deal
Flip the calendar back to last November, and RingCentral had just laid off ten percent of its staff. These cutbacks aimed to increase cost efficiencies within the business.
Now, the move to roll up 8×8 – a company with debts of its own – may only add more costs. After all, 8×8 has many more platforms in its portfolio to maintain.
Some may also point to RingCentral’s latest earnings and suggest that such a deal is not essential to accelerating its profits.
Meanwhile, others may caution against cutting back its ties with NICE for CCaaS. Indeed, it is a market-leading vendor – according to the latest Gartner Magic Quadrant.
As this is the case, many of its current customers may feel they already receive the crème de la crème of CCaaS.
With that said, if RingCentral could turn back time, it probably would make an overvalued stock offer for 8×8 and snap up the vendor at a significantly reduced rate.
Yet, hindsight is always much simpler than foresight, and this deal may still have some legs.