’Tis The Season To Buy An Enterprise Software Company For Billions

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.

That’s certainly the hope behind Thoma Bravo’s $6.15 billion cash purchase of Coupa Software.

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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