Thoma Bravo, a private equity group, said last night that it has agreed to buy Anaplan for $10.7 billion. The shares of the financial planning software company have dropped dramatically in the previous six months, giving the PE firm an opportunity to attack. The stock market hasn’t been kind to SaaS companies in recent months, so we’re wondering whether we’re witnessing the start of a trend of private equity investors targeting fragile SaaS companies.
To address that, let’s take a brief look at the Anaplan deal to see if Thoma Bravo is paying a premium for this firm. We’ll be able to get a sense of how much private equity types are prepared to pay for modern digital businesses from there. Following that, we’ll apply what we’ve learned to a slew of public SaaS firms that may find themselves fielding calls from other private equity firms. Don’t forget that private equity has more accessible dry powder than it has ever had, and that money might be hunting for a target.
Private equity funds want companies with excellent market positioning, a huge and valued client base, and capacity for expansion, all of which modern cloud companies offer in abundance. Inside the Anaplan-Thoma Bravo partnership, Anaplan reported a 33 percent increase in fourth-quarter revenue to $162.7 million, with $148 million coming from subscription sources. Revenue increased by a little under 32% year over year, implying that the company’s Q4 growth rate was similar to its full-year performance.
We may generate a revenue multiple of nearly 16.4x for the acquisition by converting the company’s Q4 revenue into run-rate revenues and applying that amount (around $651 million) against its $10.7 billion purchase price. When we compare prospective revenue estimates to their current value, we’ve witnessed a drop in software business values to the point where SaaS firms expanding at more than 30% today have had their revenue multiples slashed to the 12x level. In comparison, the Anaplan offer pricing appears to be full-fat.
Indeed, as compared to pre-deal values, Thoma Bravo paid a 46 percent premium ($66 per share) for Anaplan’s shares, putting the PE firm close to a Q4 2021 price for the software business. Anaplan stock peaked at slightly over $66 per share in the last six months, exactly in line with Thoma Bravo’s offer. This gives us a handy little framework to work with: Software firms that are now trading at low prices may be able to sell to private entities for a high-water mark in Q4 2021. If that’s the case, we’re interested to see who else would be willing to give up their status as a stand-alone business. And we’ve got a list of names in mind.