By Edward Mazin (UCLA), Adam Bernabeu, Mahaut Bonnet de Roovere and Malo Inizan (HEC Paris)
Photo: Ahmer Kalam (Unsplash)
Overview of the deal
Acquirer: Blackstone and Vista Equity Partners
Target: Smartsheet
Total Transaction Size: $8.4bn
Announcement Date: September 24, 2024
Expected Close Date: January 31, 2025
Target Advisors: Qatalyst Partners (Financial); Fenwick & West LLP (Legal)
Acquirer Advisors: Goldman Sachs and Morgan Stanley (Financial); Kirkland & Ellis and Simpson Thacher & Bartlett (Legal)
On September 24, 2024, Blackstone and Vista Equity Partners announced a definitive agreement to acquire collaboration software maker Smartsheet for $8.4 billion. The buyers will purchase all outstanding shares from Smartsheet shareholders at a price of $56.50 per share in cash, representing a premium of approximately 41% over the volume-weighted average closing price of Smartsheet stock. Following the transaction, Smartsheet will become a privately held company, six years after going public in 2018. If completed, this deal would rank as one of the largest take-private transactions of the year and could indicate a resurgence in buyout activity following a dragging 2023.
As the enterprise platform for modern work management continues to serve a wide range of clients, including 85% of Fortune 500 companies, it has been assessing interest from potential buyers for several months. Smartsheet aims to position itself against major players like Atlassian by offering organizations solutions to manage, track, and automate their workflows through a single platform.
“Our next phase of growth and customer success is underway, and we look forward to partnering with Blackstone and Vista Equity Partners to accelerate our vision of modernizing work management for enterprises, globally.” Mark Mader, CEO (Smartsheet)
Company Details (Acquirer - Blackstone)
Blackstone is an alternative asset management firm specializing in real estate, private equity, hedge fund solutions, credit, secondary funds of funds, public debt and equity, and multi-asset class strategies.
Blackstone typically invests in early-stage companies and provides capital markets services. In real estate, Blackstone looks for promising and stable investments, including loans backed by commercial properties across North America, Europe, and Asia. Blackstone's corporate private equity team handles a variety of deals worldwide, from large buyouts to special situations and growth projects, often taking significant stakes in sectors like energy, healthcare, and consumer technology. The firm is also interested in opportunities in Asia and Latin America, typically aiming to invest between $250,000 and $900 million in companies valued at $500 million to $5 billion. Blackstone operates on a three-year investment cycle. Its hedge fund division manages a mix of fund options, while its credit division focuses on loans and securities from companies that aren’t considered investment-grade.
Founded in 1985, headquartered in New York City, USA
CEO: Stephen A. Schwarzman
Number of Employees: 4,700
Market Cap: $130.6bn
LTM Revenue: $11.1bn
LTM P/E: 55.6x
LTM P/BV: 16.5x
Recent Transactions: Foshan Ruixin Logistics Management for $7.9mm (Sep. 13, 2024), Pan-European Logistics portfolio for $276.6mm (Sep. 2, 2024)
Company Details (Acquirer - Vista Equity Partners)
Vista Equity Partners is a leading investment firm with over $100 billion in assets under management as of March 2024. Vista specialize in enterprise software and technology-driven companies and uses a variety of investment strategies, including private equity and credit. Vista usually invests between $5 million and $1 billion in companies valued from $25 million to $10 billion. The firm looks at sectors such as healthcare, education, IT, and financial services, primarily in North America and Europe. The firm focuses on long-term growth and creating real value by leveraging technology in their investments. Vista also has offices in North America and Asia.
Founded in 2000, headquartered in Austin, Texas
CEO: Robert F. Smith
Number of Employees: 207
Assets Under Management: $100bn
Recent Transactions: PowerSchool Holdings for $5.4bn (Jun. 7, 2023), Portside, Inc. for $63.3mm (May 20, 2024)
Company Details (Target - Smartsheet)
Smartsheet develops cloud-based enterprise work management technologies for managing and tracking projects, collaborating, storing data, and automating and assigning tasks. Smartsheet provides its customers with a robust set of capabilities to plan, capture, manage, automate, and report on work at scale - from an individual project to tens of thousands of concurrently run projects, programs, and portfolios. Its customers are in over 190 countries and include 85% of Fortune 500 companies. As of January 31, 2024, Smartsheet’s customers had annualized recurring revenue ranging from less than $200 to over $6.0 million. Its customers typically begin using the platform for a single initiative, process, or project, but over time, the adoption of the platform expands horizontally across an organization through new use cases and teams, as well as expands vertically to increasingly sophisticated and mission-critical uses.
Founded in 2005, headquartered in Bellevue, Washington
CEO: Mark Mader
Number of employees: 3,317
Market Cap: $7.7bn (as of September 24, 2024)
EV: $7.1bn (as of September 24, 2024)
LTM Revenue: $1.0bn (as of September 24, 2024)
LTM EV/Revenue: 7.1x
Projections and Assumptions
Short-Term Consequences
Smartsheet’s revenue in its most recent fiscal year was up by 17%, to $276.4 million. For the full fiscal year of 2025, the company expects revenue to range between $1.11 and $1.12 billion. These results might have played a role in raising the total amount of the deal to $8.4 billion. At $56.50 per share, Blackstone and Vista Equity, offer a 41% premium on Smartsheet’s 90-day average closing share price. The transaction has been unanimously approved by Smartsheet’s board but is still pending shareholders’ approval. Under the deal conditions, Smartsheet has a 45-day “go-shop” period to solicit alternative buyout offers ending on November 8th. On the announcement, Smartsheet shares rose roughly 6.4% to close at $55.46, lower than the price offered in the transaction.
For Vista Equity and Blackstone, the new acquisition will grow their portfolios of technology ventures focused on enterprise solutions (Civica and AirTrunk for Blackstone; Nasuni, Quickbase, and Lucid Software for Vista Equity), enabling the creation of synergies among these portfolios. For Smartsheet, the company will benefit from both private equity companies’ expertise and operational experience in the software space. Going private should allow the target company to move faster with less distraction, enabling some longer-term investments. The company will continue operating under the Smartsheet name and brand, with a new executive structure, introducing a dual President model and eliminating the Chief Operating Officer position. This buyout in the software sector from public to private is the fourth one this year, down from 11 transactions two years ago, a decline that might reverse with declining interest rates and private equity firms’ growing interests in technologies.
Long-Term Upsides
Blackstone and Vista Equity Partners’ acquisition of Smartsheet marks one of the largest take-private deals of the year. With interest rates having declined by 50 bps, the acquisition reflects a broader rebound in private equity-backed acquisitions, which rose 39% in the U.S. through September 12.
The buyers are expected to accelerate Smartsheet’s growth by leveraging their resources and expertise. Vista has built a strong reputation in the enterprise software sector, with investments in firms such as Lucid Software and Quickbase. Blackstone and Vista’s support positions Smartsheet to modernize enterprise work management and innovate at a faster pace.
The acquisition has broader market implications, underscoring the growing importance of collaborative work solutions in an evolving business landscape. It comes at a time when many companies are rethinking how to enhance productivity amid changing work environments.
By integrating Smartsheet with other technology companies within their portfolios, including the possibility of synergies with firms like Lucid, Blackstone and Vista aim to create a more comprehensive suite of tools for enterprise customers. As businesses adjust to dynamic market conditions, this acquisition enables Smartsheet to play a key role in shaping the future of work globally.
Risks and Uncertainties
The transaction between Blackstone/Vista Equity Partners and Smartsheet carries multiple risks, including uncertainties surrounding deal execution and business operations. A primary concern involves obtaining necessary shareholder and regulatory approvals, without which the transaction may be delayed or cancelled. Competing offers for Smartsheet or unmet conditions in the merger agreement could further jeopardize the deal. Additionally, the merger’s uncertainty may negatively affect Smartsheet’s ability to retain key personnel, maintain customer relationships, and preserve stock value. Management’s focus on the merger could detract from Smartsheet’s day-to-day operations, leading to operational disruptions and potential leadership loss. There is also a risk of litigation related to the transaction, resulting in significant legal costs.
Beyond the merger, Smartsheet faces infrastructure and security risks. Reliance on public cloud providers makes the company vulnerable to outages or cyber-attacks that could disrupt operations and lead to data breaches, resulting in reputational damage, liabilities, and lost customers. As Smartsheet operates in a highly competitive and evolving industry, failure to innovate or scale its platform could impair growth. Challenges in attracting new customers, especially enterprise or government clients, could further slow expansion. Additionally, the business model’s reliance on a single revenue stream heightens exposure to financial risks, as any decline in the core product’s performance would impact overall profitability.
Sources
https://www.wsj.com/articles/smartsheet-to-be-taken-private-by-pe-firms-in-8-4-billion-deal-7296758c