K. Liu's Week in Review
Depending on news flow next week, this may well be our last weekly recap for 2019, so we wish you all a safe and happy holiday season! Last week, media reports indicated that LogMeIn (LOGM) was set to be acquired by affiliates of private equity firm Francisco Partners and Elliott Management in a deal valued at over $4.0 billion. That ultimately came to pass this week with LogMeIn agreeing to be taken private for $86.05 per share in cash, representing an equity value of approximately $4.3 billion. While only a 4.4% premium to the closing price prior to the announcement, the transaction price represents a 25.8% premium to the unaffected closing price on September 18, 2019, the day prior to rumors that LogMeIn was in talks to sell parts of the company surfaced. Based on consensus estimates for FY ’20, which reflect top line growth of 4.5% but contraction in both adjusted EBITDA and non-GAAP EPS, the purchase price values the company at EV/Sales and EV/EBITDA multiples of 3.3x and 11.0x, respectively.
Amidst a shift towards software, F5 Networks (FFIV) agreed to acquire Shape Security for an enterprise value of approximately $1.0 billion in cash, implying a TTM EV/Sales multiple of 16.7x. The deal follows the company’s purchase of NGINX earlier in the year for an enterprise value of $670 million and further accelerates its transition to a software- and SaaS-driven business model. Per management, Shape’s anti-fraud and abuse platform more than doubles the company’s addressable market in application security to over $8.0 billion. Although Shape generated $60 million in revenue over the past 12 months and boasts a growth rate in excess of 50%, ease of insertion into traffic flow has been a bottleneck to deployment, which should be remedied by integration with F5’s and NGINX’s proxy solutions. As for the financial impact, the acquisition is expected to accelerate F5’s FY ’20 non-GAAP software revenue growth rate from 35%-40% to 60%-70% and accelerate total revenue growth from the mid-single digit range to the mid- to high-single digit range. Accretion on a free cash flow basis is expected within 12 months of closing with breakeven non-GAAP EPS anticipated within 24 months of closing. F5 plans to fund the deal with existing cash on the balance sheet and $400 million in debt.
On a much smaller scale, HealthStream’s (HSTM) wholly-owned subsidiary, VerityStream, acquired CredentialMyDoc for approximately $9.0 million in cash. CredentialMyDoc’s SaaS platform is used by over 300 customers, many of whom are in ambulatory care settings, to credential providers, enroll providers with payers for reimbursement, and apply and maintain privileges. The acquisition provides VerityStream with exposure to outpatient centers, an important market given rising patient demand for same-day service providers. As an aside, we initiated coverage of CTG, Inc. (CTG) earlier this week and highlighted the healthcare industry’s shift towards value-based care. To maximize incentives (and minimize losses) under this model, healthcare providers may need to partner together to deliver coordinated care to patients within a network, which we surmise makes ease of credentialing providers all the more important.
Rounding out the news this week were a couple of notable executive moves. HubSpot (HUBS) hired Yamini Rangan as its first-ever Chief Customer Officer. Ms. Rangan joins the company from Dropbox (DBX), where she served in the same role, and will be responsible for ensuring the marketing, sales, and services teams are aligned around the customer. At Instructure (INST), Patricia Molenaar, who has served in senior sales roles at ADP, Oracle, and Element 8, was named VP of Sales for EMEA. Instructure also faced further opposition to its proposed sale to Thoma Bravo this week as a third shareholder, Oberndorf Enterprises, announced its intention to vote against the deal.
Mergers and Acquisitions
F5 to Acquire Shape Security, Transforming Application Security
F5 Networks (FFIV) has agreed to acquire Shape Security for an enterprise value of approximately $1.0 billion in cash.
Shape’s anti-fraud and abuse platform protects against automated attacks, botnets, and credential stuffing attacks that bypass application security and fraud controls.
Per management, the acquisition more than doubles F5’s addressable market opportunity in application security to over $8 billion and will be deeply integrated with the company’s platform for application delivery and security.
The transaction is expected to close in the first quarter of 2020 and will be funded by cash on hand and $400 million in a Senior Unsecured Term Loan A.
Shape generated $60 million in revenue over the past 12 months and is expected to accelerate F5’s FY ’20 software revenue growth from 35%-40% to 60%-70%, increase the mix of software within product revenue from 25%-30% to over 35%, and accelerate total revenue growth from mid-single digits to mid- to high-single digits on a non-GAAP basis.
F5 expects the acquisition to be accretive on a free cash flow basis within 12 months of closing and neutral to non-GAAP EPS within 24 months of closing.
LogMeIn (LOGM) has agreed to be taken private by affiliates of Francisco Partners and Elliott Management for $86.05 per share in cash, representing an equity value of approximately $4.3 billion.
The sale price reflects a 4.4% premium to the prior day’s closing price and a 25.8% premium to the unaffected closing price on September 18, 2019, which was the day before rumors of a sale process were published in a media report.
The acquisition values LogMeIn at TTM EV/Sales, EV/EBITDA, and P/E multiples of 3.5x, 10.4x, and 16.6x, respectively.
The transaction includes a 45-day “go-shop” period and is expected to close in mid-2020.
VerityStream, a HealthStream Company, Acquires CredentialMyDoc
HealthStream’s (HSTM) wholly-owned subsidiary, VerityStream, has acquired CredentialMyDoc from Covenant Technology Group for approximately $9.0 million in cash.
CredentialMyDoc offers a SaaS platform used to credential providers, enroll providers with payers for reimbursement, and apply and maintain privileges.
The acquisition adds over 300 customers comprised of multi-specialty medical groups, ambulatory surgery centers, clinics, and federally qualified health centers, among others.
Notable News
HubSpot Announces First-Ever Chief Customer Officer, Yamini Rangan
HubSpot (HUBS) has hired Yamini Rangan as its first-ever Chief Customer Officer, effective January 8, 2020, with responsibility for uniting the marketing, sales, and services teams around the customer.
Ms. Rangan joins the company from Dropbox (DBX) where she also served as Chief Customer Officer.
Instructure Hires Patricia Molenaar as VP of Sales for EMEA
Instructure (INST) appointed Patricia Molenaar as VP of Sales for EMEA.
Ms. Molenaar has 25 years of experience in sales and business development and has served in senior sales roles at ADP, Oracle, and Element8.
Oberndorf Enterprises, a shareholder of Instructure (INST), plans to vote against the company’s plan to be taken private by Thoma Bravo.
Oberndorf has sent a letter detailing its concerns with the sale process and potential conflicts of interest and recommends the appointment of an independent special committee with new legal and financial advisors.
Disclosure(s):
K. Liu & Company LLC has received compensation from CTG, Inc. (CTG) in the past 12 months for “Sponsored Research.”
Sponsored Research produced by the firm is paid for by the subject company in the form of an initial retainer and a recurring monthly fee. The analysis and recommendations in our Sponsored Research reports are derived from the same process and methodologies utilized in all of our research reports whether sponsored or not. The subject company does not review any aspect of our Sponsored Research reports prior to publication.