Last night, private stock company Thoma Bravo said it agreed to acquire Anaplan for $10.7 billion. Shares of the financial planning software company have fallen sharply over the past six months, likely giving the PE firm a chance to strike.
The stock market has not been kind to SaaS companies in recent months, leaving us wondering if we are seeing the beginning of a private equity trend targeting vulnerable SaaS companies.
To answer that, let’s quickly unpack the Anaplan transaction and better understand whether Thoma Bravo pays a premium for this company. From there, we can get an idea of how much private equity types are willing to pay for modern technology companies.
Then we apply what we learned to a large number of public SaaS companies that could answer incoming calls from other private equity concerns. Remember, private equity is richer than it’s ever been in terms of available dry powder, and money can look for a target.
Private equity firms look for strong market positioning and a large and valuable customer catalog with room for growth, all of which modern cloud companies have in abundance.
Within the Anaplan-Thoma Bravo deal
Anaplan said fourth quarter revenues were up about 33% to $162.7 million — $148 million of which came from subscription sources — from a year earlier. Year-over-year, sales were up just under 32%, meaning the growth rate in the fourth quarter was comparable to the full year result.
Converting the company’s Q4 revenue into run-rate revenue, we can apply that figure (about $651 million) to the $10.7 billion purchase price to get a revenue multiple of about 16.4x for get the transaction.
Remember, we’ve seen software company valuations drop to the point where SaaS companies growing more than 30% today have reduced their revenue multiples to 12x when we compare future revenue forecasts to their present value. Compared to that number, the Anaplan deal price seems to be full.
Indeed, with Thoma Bravo paying a premium of about 46% ($66 per share) for the software company’s stock compared to pre-deal prices, the PE company is coughing close to a Q4 2021 price for Anaplan. To be precise, Anaplan stock has peaked at just over $66 a share for the past six months, right in line with Thoma Bravo’s bid.
This gives us a nice little framework to work with: software companies trading at low prices today may be able to sell to private entities for their valuation in the fourth quarter of 2021.
If so, we’re quite curious to see who else could be lining up to give up their status as an independent company. And we have more than a few names in mind.