Software private equity investors like to think of themselves as deal hunters, adept at picking out undervalued companies that, with a bit of restructuring, could exit in a few years at much higher valuations.
Of course, not every deal works out. But those that do have a history of delivering some outsized returns. And buying at a low point in the market cycle seems to help.
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The deal, announced Monday, represents a 30% premium over Coupa’s Friday closing share price, but is well below peak valuation.
San Mateo, California-based Coupa, which makes business spend management software, went public in 2016 and by early 2021 had a market capitalization of well over $20 billion. Shares have shed over 80% of their value since, picking up only when talks of a potential deal garnered headlines last month.
The purchase caps off a busy year for enterprise software M&A deals. Per Crunchbase data, acquirers have spent over $127 billion so far this year in disclosed-price purchases of SaaS and enterprise software companies. As the chart below illustrates, that’s the second-highest total in five years:
Globally, the trendlines look similar, with American companies accounting for the vast majority of M&A spending:
Many of the largest private equity purchases are for companies with stock fortunes that look a lot like Coupa’s. By and large, these are enterprise software players that went public a few years ago, saw shares surge in 2020 and 2021, and then suffered sharp declines in the past few quarters. Examples include:
- ForgeRock, a provider of identity management tools, announced a deal in October to sell to Thoma Bravo for $2.3 billion. Shares of San Francisco-based ForgeRock had shed roughly two-thirds their value from their early 2021 peak prior to the deal’s announcement.
- Zendesk, a customer service software provider, announced in November it completed its previously announced sale to a consortium of private equity investors led by Hellman & Friedman and Permira in an all-cash transaction that valued the company at approximately $10.2 billion. That purchase, announced in June, was a steep markdown from a $17 billion offer Zendesk had reportedly rejected just a few months earlier. However, market conditions changed in the ensuing months, pushing valuation lower.
- Anaplan, a provider of business planning software, sold to Thoma Bravo for $10.4 billion in June. At the time of the deal’s announcement, Anaplan was trading well below peak, so Thoma Bravo was able to acquire it by offering a share price premium priced close to its peak valuation. The deal closed at a lower price than originally announced.
Illustration: Dom Guzman
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