K. Liu's Week in Review

Strategic acquisitions dominated the headlines this week led by Zoom Video Communications’ (ZM) move to acquire contact center software provider Five9 (FIVN) in an all-stock transaction valued at $14.7 billion. The implied purchase price of $200.28 per share reflects a 12.8% premium to FIVN’s last closing price and values the company at a TTM EV/Sales multiple of 29.4x. Based on current consensus estimates for FY ‘21, the transaction multiple still sits at a lofty 25.5x sales. Strategically, the combination is being billed as a growth accelerator with Zoom’s addressable market opportunity now estimated to be over $86 billion. Anticipated revenue synergies include the cross-selling of Zoom Phone to Five9’s customers and adoption of Five9’s contact center software by Zoom’s largest clients.

In a significantly smaller but similarly transformative acquisition, Veritone (VERI) agreed to buy PandoLogic for $150 million in cash and stock. PandoLogic provides talent acquisition software that leverages AI to improve the hiring process for enterprises. The transaction significantly increases Veritone’s share of the market for machine learning operations, which is estimated to reach $34 billion by 2025. Of the $150 million in total consideration, $85 million will be paid upfront with the remainder payable based on earnout targets for 2021 and 2022. PandoLogic is forecasted to generate $50 million in SaaS and related GAAP revenue this year and over $25 million in EBITDA. The company has grown at a CAGR of over 100% during the past three years and boasts a pro forma operating margin in excess of 50%. Between the relatively low valuation afforded to PandoLogic and target’s financial profile, shares of VERI reacted positively to the deal.

Both Rapid7 (RPD) and LivePerson (LPSN) were also on the tape with tuck-in transactions. The former paid $335 million in cash and stock for IntSights Cyber Intelligence, adding external threat intelligence and proactive remediation capabilities to its platform. Rapid7 also pre-announced Q2 ’21 revenue and non-GAAP operating income above its prior guidance. As for the latter, LivePerson acquired e-bot7, a provider of self-service AI tools. The acquisition is expected to expand LivePerson’s presence in Europe and enable its brand customers to accelerate their deployment of AI-powered messaging experiences.

Last week, we highlighted EXFO’s (EXFO) strong fiscal Q3 ’21 results. This week, those results were met with an increased offer from VIAVI Solutions (VIAV) to acquire the company for $8.00 per share in cash, up from its prior offer of $7.50 per share. The revised offer also represents a 33% premium to the current $6.00 per share go-private offer accepted by the Board of Directors. Unfortunately for minority shareholders, the company’s controlling shareholder Germain Lamonde has no interest in relinquishing his stake and has consistently stated that the only options at this juncture are for EXFO to go-private or to remain a publicly traded company. As such, the Board has not deemed the offer a superior proposal as it sees no path to completing a sale to VIAVI.

Finally, the software earnings season got underway with SAP (SAP) posting Q2 ’21 earnings ahead of expectations on a relatively in line revenue performance. Management highlighted accelerating growth in the company’s current cloud backlog, which was driven by strong demand for ‘RISE with SAP’ among new and existing customers and a corresponding increase in adoption of S/4HANA Cloud and the SAP Business Technology Platform. Reflecting the results, management hiked the low-end of its cloud revenue guidance for the year and raised its prior FY ’21 guidance for both cloud and software revenue and operating profit.

Mergers and Acquisitions

Germain Lamonde Rejects Fourth Unsolicited, Non-Binding Proposal From Viavi

  • Following Viavi Solutions’ (VIAV) increased offer to acquire EXFO (EXFO) for $8.00 per share in cash, EXFO founder and controlling shareholder Germain Lamonde again stated that he will not consider any transaction with Viavi or other change of control transaction.

  • Mr. Lamonde reiterated that either EXFO’s shareholders accept his $6.00 per share go-private offer, or EXFO will remain a public company.

LivePerson acquires e-bot7 to make self-serve, quick-launch conversational AI more accessible

  • LivePerson (LPSN) has acquired e-bot7, a German provider of self-service AI tools.

  • The acquisition expands LivePerson’s presence in Europe and will accelerate the pace at which brands can deploy AI-powered messaging experiences.

Rapid7 Acquires Threat Intelligence Leader IntSights and Provides Strong Preliminary Second Quarter 2021 Financial Results

  • Rapid7 (RPD) has acquired IntSights Cyber Intelligence Ltd. for $335 million in cash and stock.

  • IntSights provides contextualized external threat intelligence and proactive threat remediation solutions.

  • The combination of Rapid7’s community-infused threat intelligence with IntSight’s external threat intelligence capabilities is expected to provide customers with a unified view into threats, attack surface monitoring and proactive threat mitigation.

  • Rapid7 also pre-announced Q2 ’21 ARR of $489 million (+29% Y/Y) and indicated both revenue and non-GAAP operating income are expected to exceed its prior guidance for $121.7-$123.3 million and $4.3-$5.3 million, respectively.

Veritone to Acquire PandoLogic, Expanding AI Platform for Intelligent Recruitment

  • Veritone (VERI) has agreed to acquire PandoLogic, a provider of talent acquisition software leveraging AI recruitment marketing and conversational AI technology, for $150 million in cash and stock.

  • The $150 million in total consideration is comprised of $50 million in cash and $35 million in stock up front with the remaining $65 million in cash and stock representing potential performance-based earnouts in 2021 and 2022.

  • PandoLogic is expected to generate over $50 million in SaaS and related GAAP revenues and over $25 million in EBITDA in 2021, boasts a CAGR in excess of 100% over the past three years and has a pro forma operating margin over 50%.

VIAVI Announces Increased Binding Proposal to Acquire EXFO at US$8.00 Per Share

  • VIAVI Solutions (VIAV) has increased its offer to acquire EXFO (EXFO) from $7.50 to $8.00 per share in cash.

  • The increase was attributed to the company’s recently reported results and is 33% higher than $6.00 per share going-private transaction previously approved by the Board of Directors.

Zoom to Acquire Five9

  • Zoom Video Communications (ZM) has agreed to acquire Five9 (FIVN) in an all-stock transaction valued at $14.7 billion, which represents TTM EV/Sales and EV/EBITDA multiples of 29.4x and 150x, respectively.

  • Five9 shareholders will receive 0.5533 shares of Zoom’s Class A common stock, implying a purchase price of $200.28 per share based on Zoom’s last closing price prior to the announced transaction and a 12.8% premium FIVN’s last closing price.

  • The combined company will have an estimated addressable market opportunity in excess of $86 billion.

  • Management anticipates cross-selling Zoom Phone to Five9’s customers and bringing Five9’s contact center software to Zoom’s largest customers.

Earnings Releases

SAP Announces Second Quarter 2021 Results

  • SAP (SAP) reported Q2 ’21 profitability ahead of expectations and raised its guidance for FY ’21.

  • Non-IFRS revenue of €6.669 billion (-1.1% Y/Y) was approximately in line with the Street’s €6.693 billion. Non-IFRS operating profit of €1.922 billion (28.8% margin) exceeded consensus of €1.702 billion. Non-IFRS EPS of €1.75 beat the Street’s €1.23.

  • Key metrics: added over 250 ‘RISE with SAP’ and over 600 S/4HANA customers; cloud revenue of €2.276 billion (+11% Y/Y); cloud and software revenue of €5.750 billion (+1% Y/Y); current cloud backlog of €7.766 billion (+17% Y/Y).

  • SAP has seen strong demand for ‘RISE with SAP’ from both its installed base and new customers, which in turn drives strong adoption of S/4HANA Cloud and the SAP Business Technology Platform.

  • Management highlighted its human experience management solutions, double-digit CX cloud revenue and backlog growth and a similarly strong performance in its Digital Supply Chain business as contributors to SAP’s market share gains.

  • The travel and expense business exhibited signs of recovery amid easing global travel restrictions, resulting in stabilization on a sequential basis for the first time since the onset of the pandemic.

  • Management raised the low-end of its FY ’21 cloud revenue guidance, which now stands at €9.3-€9.5 billion, and increased its guidance for cloud and software revenue and operating profit from €23.4-€23.8 billion and €7.8-€8.2 billion, respectively, to €23.6-€24.0 billion and €7.95-€8.25 billion.