Meta to Divest CRM Startup Kustomer for $250M

    The tech giant Meta, formerly known as Facebook, has reportedly decided to liquidate its majority stake in the business software provider, Kustomer.

    Under the deal, Meta would remain the single largest stakeholder of Kustomer but with no seat on its board.

    With the divestment, Meta’s grand experiment in rolling out a high-end enterprise-grade customer service platform has ended, reported Yahoo! Finance

    The plan completion date was May 15th.

    More Insight into the Divestment

    The parent of Facebook is selling Kustomer back to its original partners—Battery Ventures, Redpoint Ventures, and Boldstart Ventures—in exchange for funding its ongoing operations.

    Under the deal, each of the previous backers would invest a capital of $60M, giving the business-software startup a valuation of roughly $250M.

    Meta is trading its ownership of the CRM system for a passive minority stake. Brad Birnbaum, the CEO, and Co-Founder of Kustomer, will remain at the helm of the spun-out business. 

    The spin-out is tied to Meta’s “efficiency effort”, which is expected to help the company refocus on its core business aspects and ensure more streamlined operations. 

    “In light of Meta’s efficiency efforts, we’ve made the decision to focus on our fastest-growing business messaging offerings, including the monetization opportunity for WhatsApp,” according to a spokesperson from Meta. 

    Fleshing Out the Reasons Behind the Spin-off

    Meta acquired Kustomer to double down the power of social media. The deal to acquire Kustomer was valued at around $1 billion and was inked in 2020. The acquisition of Kustomer was completed last year after a one-year-long regulatory scrutiny and was marked as a powerful enabler for bringing Messenger and WhatsApp to customer service environments.

    However, Meta’s integration with a range of Kustomer’s competitors (e.g., Hubspot) put the value proposition of the Meta-Kustomer deal in question. On top of this, despite this high-profile buy-in, the revenue growth curve of Kustomer flattened last year—with the company burning through around $200M.

    That said, with the integration, Meta enabled customers to use WhatsApp to message, search for, and buy from businesses natively on the platform.

    Even though a CRM can help Meta achieve these new business goals and store customer experience data, it shouldn’t necessarily be a first-party system. Collaborating with third-party systems could also let Meta enable businesses to manage communications with their customers through Messenger and WhatsApp. 

    Recognising the above points, Meta decided to offload Kustomer and shift back to its core business. After its divestment, Kustomer will operate as a standalone business with a fraction of the headcount (around 90 staffers) it had under Meta. However, the CEO Kustomer radiated optimism. 

    “It’s a significant milestone for Kustomer as we begin our next chapter as an independent company,” said the CEO. Kustomer strongly believes spinning out was in the best interest of the company, customers, and employees, and we are very excited to continue to enhance our world-class platform in ways we couldn’t have imagined only a few years ago using advanced automation and generative AI.”

    Meta’s plan to spin off Kustomer was first reported in March 2023 amid a major restructuring, business flattening, and cost-reduction effort at the company.

    The company’s “year of efficiency” has also included laying off 21,000 employees, canceling low-priority projects, and downsizing its hiring rate.

    Successful Divestment Requires Coordinated Effort

    Even though equity divestment is common in the M&A industry, it’s a highly intricate process that requires coordinated efforts to become successful.

    For businesses looking to efficiently divest their business units, investing in a high-end M&A service provider such as Fission Consulting is a sensible decision.

    Leveraging M&A and IT expertise, an industry-leading service can efficiently navigate a complex transformational project, ensuring minimal business disruptions. 

    Wrapping Up

    Holding a minority stake in the Kustomer would enable Meta to develop new products with the CRM business and serve the customers that Meta picked up while owning the CRM.

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