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LiveRamp (NYSE:RAMP), C3.ai (NYSE:AI), Varonis Systems (NASDAQ:VRNS), PagerDuty (PD) and Couchbase (NASDAQ:BASE) screened as the most likely takeover targets for private equity firms, according a Morgan Stanley analyst.
Although 2022 M&A activity has fallen overall, the year has been a record one for PE-backed software deals, Morgan Stanley analyst Keith Weiss wrote in a note on Thursday. Eleven transactions have been announced this year with the multiples paid at an average of 10.4X TTM sales.
The multiples paid this year are higher than the ~7.5x paid for PE-back deals since Morgan Stanley began tracking them in 2013 and 5 out of the 6 most expensive multiples ever paid by PE for public software companies occurred in 2022, according to Morgan Stanley’s Weiss.
“With ~80% of our coverage now trading belo the average M&A takeout, software multiples may see some support from this activity,” Weiss wrote in the note.
The note comes as tech-focused PE firm Thoma Bravo announced on Wednesday that it raised more than $32.4 billion for three new buyout funds. Thoma Bravo has been very busy with tech deals this year especially cybersecurity firms, picking up SailPoint Technologies for $6.9 billion in April, Ping Identity for $2.8 billion in August and it agreed to buy ForgeRock (FORG) for $2.3 billion in October.
Other software companies that screened for possible PE-backed buyouts include Docebo (DCBO), Coupa Software (COUP), SmartSheet (SMAR), Tenable (TENB), JFrog (FROG), Hashicorp (HCP), Workiva (WK), Instructure (INST), Qualys (QLYS) and Blackline (BL).
Coupa Software (COUP) has been in the headlines lately after Bloomberg reported Nov. 23 that private equity firm Vista Equity was said to be exploring a possible purchase and had held talks with the company, sending the shares surging almost 30% on the day of the report. On Friday Coupa rose 7% in after hours trading after another Bloomberg report that private credit firms are said to be working on a $3 billion debt package to help finance a private equity takeover.
Recent conversation with investors indicate Coupa (COUP) could see a price of $75-$80 a share in a takeout, (~8x NTM Sales), according to Morgan Stanley. Based on a ~10x NTM sales multiple, there’s a “reasonable framework” for Coupa to see ~$100 share in possible takeover.
Investors may find out more about a possible Coupa (COUP) takeover as it’s set to report Q3 results on Monday after the close.
RBC in October said Box Inc. (BOX) Coupa, (COUP), Duck Creek Technologies (DCT), N-able (NABL), New Relic (NEWR), SolarWinds (SWI) and Teradata (TDC) screened as software companies most likely to be targeted by PE.
