Rohan’s view
Battered-up and bruised software names are having their Regina George moment. Once beloved, then out of style, and now back again. What happens next is anyone’s guess — but private equity is salivating.
CEOs, bankers, and investors have all known that the SaaSpocalypse wouldn’t last — there’s too much value and too much sticky cash flow in these businesses for them to be beaten down forever.
But it’s taken a few months for board members to accept their companies’ new valuations. The first shot in the arm was when Italian software rollup machine Bending Spoons picked up Airtable, a company once worth $12 billion that sold for just north of $1 billion.
It’s a similar story at PayPal, where Stripe and Advent are trying to buy the company in a deal that would value the payment processor at roughly $53 billion — a fraction of what it was worth just a year or two ago. But the two sides aren’t far apart on valuation, I’m told, and talks are proceeding at pace. (PayPal and Advent both declined to comment.)
A bigger boost came with the news of Workday’s talks with private-equity firm Silver Lake for a gargantuan leveraged buyout that sent shares of every software name up sharply last week. Those talks are early but ongoing, an indication that buyout shops can finally get back to doing what they do best: fixing unlovable businesses.
The SaaSpocalypse presents a perfect moment for PE and buyout shops like Thoma Bravo and Hellman & Friedman who excel at cutting costs and scaling businesses away from quarterly, public market scrutiny.
And now it seems Wall Street has found the bottom of the software market. The bid-ask spread is finally narrowing and investors and companies are sitting at conference tables hashing out valuations. PE shops, worried about overpaying for dying assets or just looking plain old dumb in front of their investment committees, are now feeling like they’ve got air cover to start pitching software companies and jumping into sale processes. (Whether banks or lenders are willing to finance these deals is a different question: Sovereign wealth funds are looking increasingly tapped out, and private credit funds have their own issues to sort through.)
Pitch away — but remember, the bus that hit Regina George could be just around the corner.
Notable
- Workday’s share price surged 63% last week after news broke that the firm was in talks with Silver Lake about a potential leveraged buyout. It was the stock’s best single-day performance in 10 years.