K. Liu's Week in Review
The hacking of SolarWinds’ (SWI) Orion Platform and the potential impact on a multitude of enterprises and government agencies was the talk of the week. Not surprisingly, the heightened focus on cybersecurity provided a tailwind for the space with everyone from the network and endpoint security vendors to those offering vulnerability management and remediation platforms benefiting. Several observability and service assurance stocks also saw a lift as investors considered whose platforms could see greater adoption should organizations seek alternatives for network monitoring. One stock we would throw into the mix is NetScout Systems (NTCT), a highly regarded provider of network performance management products that has been at the forefront of bundling network operations and security capabilities in a single integrated solution.
If not for the major security breach, perhaps the frenetic pace of M&A activity would have commanded far more attention. Within our coverage universe, QAD acquired a provider of strategic sourcing and supplier management solutions for €12 million in cash and €8 million in potential earnouts over the next three years. Our report, “[QAD] Acquires Allocation Network GmbH,” provides further insight into the transaction. On a more significant scale, Vista Equity Partners agreed to acquire Pluralsight (PS) for $20.26 per share in cash. While just a modest premium to the last closing price, the $3.5 billion valuation represents a TTM EV/Sales multiple of 9.2x and a FY ’21 EV/Sales multiple of 7.8x. Moreover, Pluralsight indicated that a range of strategic and transaction alternatives was considered in response to unsolicited acquisition interest. Turning to a transaction with more strategic implications, PTC (PTC) agreed to acquire Arena Solutions for $715 million in cash, adding a SaaS-based product lifecycle management (PLM) platform to its portfolio. Arena Solutions is expected to exit 2020 with ARR of $50 million, implying an EV/Sales multiple just north of 14x. The acquisition follows PTC’s acquisition of OnShape last year and is aligned with management’s strategy to target small and mid-sized organizations seeking CAD and PLM solutions with the acquired SaaS platforms, while building out the capabilities necessary to entice its larger on-premise customers to eventually migrate to the cloud.
Other strategic acquisitions included Model N’s (MODN) acquisition of Deloitte’s life sciences pricing and contracting solutions business, as well as the underlying technology, for $60 million in cash. The move will enable Model N to target pre-commercial organizations in the life sciences space, thereby expanding its market opportunity. SPS Commerce (SPSC) bought Data Masons, which provides EDI solutions to businesses and resellers in the consumer goods, industrials and distribution verticals, for $100 million in cash. The purchase price represents forward EV/Sales and EV/EBITDA multiples of 5x and 20x, respectively. SPS Commerce believes the acquisition will enable the company to offer unmatched trading partner and system expertise to those utilizing Microsoft solutions. Finally, GoDaddy (GDDY) acquired Poynt for $320 million in cash and $45 million in potential earnouts over the next three years. The acquisition adds a broad suite of products spanning point-of-sale systems, payments, invoicing, and loyalty and rewards programs, which GoDaddy plans to integrate with its existing commerce solutions.
Rounding out the news this week, BlackBerry (BB) was the lone reporting company, posting fiscal Q3 ’21 results slightly ahead of expectations and maintaining its full year outlook. Much of the focus during the earnings call, however, was on the company’s recently announced partnership with AWS to develop BlackBerry IVY, an intelligent data platform enabling the auto industry to gather, secure, transport and analyze data across multiple brands and models. Management expects adoption in model year 2023 vehicles and believes IVY will provide a new subscription and usage-based recurring revenue stream. AudioEye (AEYE) shares soared on a positive Q4 pre-announcement and the initiation of FY ’21 revenue guidance ahead of Street expectations. Medallia (MDLA) elevated two executives within its sales organization. Finally, both Asure Software (ASUR) and SharpSpring (SHSP) raised capital via equity offerings.
Mergers and Acquisitions
GoDaddy Acquires Poynt, Expands Commerce Services with Offline Sales and Integrated Payments
GoDaddy (GDDY) has acquired Poynt for $320 million in cash and $45 million in potential earnouts over three years.
Poynt offers a suite of products spanning point-of-sale (POS) systems, payments, invoicing, loyalty and rewards programs, and transaction management that is used by over 100,000 merchants to sell and accept payments anywhere.
The integration of Poynt with GoDaddy’s Websites + Marketing and WordPress commerce services will enable the company to offer a complete suite of commerce and payment services for both online and offline channels.
The transaction will contribute less than one point of revenue growth in 2021, implying revenue of less than $33 million, and be dilutive to free cash flow by $20 million; Poynt is expected to generate incremental bookings of $150 million by 2023.
Model N to Acquire Deloitte’s Life Sciences Pricing and Contracting Solutions Business
Model N (MODN) has agreed to acquire Deloitte’s life sciences pricing and contracting solutions business and underlying technology for $60 million in cash.
The acquisition adds new life sciences customers, talent and technology and will enable Model N to go after the pre-commercial segment of the market.
Model N will provide additional details regarding the anticipated contribution to FY ’21 during its Q1 ’21 earnings call.
Pluralsight Enters into Definitive Agreement to be Acquired by Vista Equity Partners
Pluralsight (PS) has agreed to be acquired by Vista Equity Partners for $20.26 per share in cash, which represents a premium of 6.7% to the last close price prior to the announced sale.
The deal values Pluralsight at $3.5 billion, representing a TTM EV/Sales multiple of 9.2x and a FY ’21 EV/Sales multiple of 7.8x.
Pluralsight evaluated a range of strategic and transaction alternatives in response to unsolicited acquisition interest.
PTC to Acquire SaaS PLM Leader Arena Solutions
PTC (PTC) has agreed to acquire Arena Solutions, a provider of a SaaS-based product lifecycle management (PLM) platform, for $715 million in cash.
The acquisition positions PTC as the only provider of a complete CAD and PLM SaaS solution.
Arena Solutions is expected to exit the year with ARR of $50 million, which represents double-digit Y/Y growth.
The transaction is expected to be neutral to PTC’s FY ’21 operating and free cash flow targets and accretive in FY ’22.
QAD (QADA) has agreed to acquire Allocation Network, a provider of strategic sourcing and supplier management solutions, for €12 million ($15 million) in cash and potential earnouts totaling €8 million ($10 million) over the next three years.
The acquisition bolsters QAD’s existing integrated supplier management portfolio with a suite of solutions for managing all aspects of direct spend in complex manufacturing environments.
QAD plans to leverage its global footprint to expand Allocation Network’s market reach and increase its cloud growth with existing customers.
SPS Commerce Acquires Data Masons
SPS Commerce (SPSC) has acquired Data Masons, a provider of EDI Solutions to consumer goods, industrials and distribution businesses and resellers, for $100 million in cash.
The acquisition will enable SPS Commerce to offer unmatched trading partner and system expertise for customers using Microsoft solutions.
Data Masons is expected to contribute nominally to Q4 results, add approximately $20 million in revenue and $3 million in adjusted EBITDA to FY ’21, and generate $5 million in adjusted EBITDA in FY ‘22.
Earnings Releases
AudioEye (AEYE) pre-announced Q4 ’20 expectations for revenue of $5.4-$5.6 million, slightly above consensus of $5.4 million, and an ending customer count of approximately 32,000.
The company has also secured a new partnership with a digital agency that will launch in January and result in the onboarding of an additional 33,000 customers.
Management’s guidance for FY ’21 calls for revenue of $30.0-$32.0 million, above Street expectations for $28.0 million.
BlackBerry (BB) reported Q3 ’21 results above expectations and maintained its prior FY ’21 revenue outlook.
Non-GAAP revenue of $224 million (-20% Y/Y) was above consensus of $220 million. Adjusted EBITDA of $31 million (14% margin) exceeded consensus of $17 million. Non-GAAP EPS of $0.02 beat the Street’s $(0.01).
Key metrics: software and services ARR was $475 million; dollar-based net retention was 90%.
Spark, Blackberry’s combined unified endpoint security offerings, made good progress in the government and financial services verticals as upgrades from UEM customers to the full Spark suite continued.
Early interest in Blackberry Cyber Suite has been strong among new logos and existing customers, resulting in significant pipeline growth.
QNX secured 17 new design wins in the quarter, saw sequential revenue growth, and remains on track to return to its normal run rate in early FY ’22.
Blackberry IVY will make it easy for the auto industry to easily gather, secure, transport and analyze data across multiple brands and models on a common platform, and management is targeting model year 2023 as the starting point for a new subscription and usage-based recurring revenue stream.
Management expects revenue of approximately $950 million for the full year, implying Q4 revenue of $246 million versus consensus of $252 million.
Notable News
Asure Software, Inc. Announces Pricing of Public Offering of Common Stock
Asure Software (ASUR) priced an offering of 2.6 million shares of common stock at a public offering price of $7.25 per share, a 5.4% discount to the close price prior to announcement of the planned offering.
The company has also granted the underwriters an option to purchase up to an additional 390,000 shares.
Proceeds from the offering will be put towards general corporate purposes.
Medallia (MDLA) has promoted Elizabeth Carducci to Chief Revenue Officer, a role in which she will lead the global industry sales function in addition to her existing responsibilities for directing the solutions consulting, solutions principals, product marketing and market intelligence functions as Executive Vice President, Industry Solutions and GTM strategy.
Greg Philiotis, Medallia’s Senior Vice President, Head of EMEA Sales has also been promoted and will now oversee all international industry sales.
SharpSpring Announces Pricing of Public Offering of Common Stock
SharpSpring (SHSP) priced an offering of 1.0 million shares of its common stock at a price to the public of $15.00 per share, a 5.5% discount to the close price prior to announcement of the planned offering.
The company’s President and CEO, Richard Carlson, has granted the underwriters an option to purchase up to an additional 150,000 shares at the public offering price.
Net proceeds from the offering are expected to be $13.9 million and will be used for general corporate purposes.
Disclosure(s):
The analyst, a member of the analyst’s household, and/or an account in which the analyst exercises discretion hold(s) a long position in the common stock of NetScout Systems (NTCT).