On November 11, 2018, Vista Equity Partners announced its intention to take software company Apptio private for $1.94 billion, at approximately $38 per share. Apptio stockholders were certainly happy with the deal, receiving a 53% price premium per share as a result of the buyout. Apptio’s price skyrocketed after the announcement, past $40 a share. The deal is expected to pass regulatory hurdles and consummate in 1Q19, but Apptio does hold the right to engage other offers for the thirty days following their agreement with Vista. The high premium, however, makes it extremely unlikely that another buyer would produce a more competitive price.
Although tech in general is a fairly congested industry, Apptio’s services are very unique, providing software-driven, cost-effective strategies for the increasing number of firms relying on cloud technology. Founded in 2007, Apptio went public in 2016 and has been experiencing attractive growth as cloud services become more prevalent. In its past two fiscal years, Apptio has achieved positive net cash flows and in 2017 reached positive operating cash flows, an important aspect of Vista’s motivation to negotiate. The stability of these flows, however, is questionable, seeing that the company experienced an almost 42% decrease in net cash flows at the end of 2017. Furthermore, in this past quarter, Apptio’s adjusted earnings turned positive to the surprise of many, perhaps downplaying the uncertainty in Vista’s mind. In terms of Apptio’s rationale for going private once again only two years after its IPO, the co-founder and CEO Sunny Gupta pointed to getting Apptio’s products to market faster. With gross margins continuing to be a huge factor in SaaS valuations, it’s no wonder that Apptio is making this decision in the interest of expanding its product base and driving up its long-term value.
In the current growth climate, PE firms are starting to mirror venture capital, taking larger risks on growth-stage enterprises. Vista is no exception, not only acquiring Apptio, but also Ping Identity, Marketo, Jamf and Datto. Despite its unorthodox approach, Vista certainly isn’t complaining, having flipped Marketo’s $1.8 billion buyout into a $4.75 billion sale to Adobe. Gupta referred to Vista’s success in tapping the potential of SaaS businesses as a reason to dive back into the private space. The SaaS sector in general has recently received a lot of attention from private equity firms such as Vista and Clearlake Capital. Clearlake acquired healthcare SaaS company Symplr for $550 million towards the end of October. SaaS has been on the minds of investors due to its enticing upside and ability to remain viable throughout recessions – if managed correctly. Mounting fears of an upcoming recession perhaps encouraged Vista and Apptio to the negotiating table - if Apptio can be put in a position to maintain current growth expectations, the cloud-based company can possibly outlast a downturn.