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Thoma Bravo’s $8 bn Acquisition of Coupa Software (updated)

By Atin Narain, Nathaniel Mathew, Omar Ali, Shreyas Mehta, Devina Aggarwal (Yale University), Aditi Singh, Ben Jackson, Rhys Meredith, Salah Baaziz, Velizar Zlatev (University of Bristol)

Photo: Austin Distel (Unsplash)


Overview of the deal

Acquirer: Thoma Bravo

Target: Coupa Software

Total Transaction Size: $8.0 billion

Closed Date: February 28, 2023

Target Advisor: Qatalyst Partners LP (Financial), Freshfields Bruckhaus Deringer LLP (Legal) Acquirer Advisor: Goldman Sachs & Co. LLC, Piper Sandler (Financial), Kirkland & Ellis LLP (Legal)

Thoma Bravo, LP, a U.S.-based private equity firm recognized for its meteoric rise in the global software buyout arena, has unveiled its acquisition strategy for Coupa Software. The deal, structured as an all-cash transaction, is pegged at an estimated $8.0 billion. Integral to this acquisition is a significant minority investment sourced from a subsidiary of the Abu Dhabi Investment Authority (ADIA).

The acquisition sees Coupa Software's shareholders poised to receive $81 per share, marking a 77% premium to the closing price. The transaction underscores Thoma Bravo’s intention to transition Coupa Software to a private entity. Founded in 2006, Coupa Software, a spend-management platform, notably acquired Llamasoft, the trailblazer in network design software, in 2020.

The transaction, carrying an enterprise value of $8.0 billion, was approved by Coupa stockholders at Coupa's Special Meeting of Stockholders held on February 23, 2023. Thoma Bravo, having completed over 400 software and technology deals since 2003 and offering an annual net return exceeding 30% to its shareholders, has positioned itself as the fastest-growing buyout firm in global software.

"We've followed Coupa with high admiration for many years and are excited to close this transaction and partner with such an incredible software franchise. Coupa's BSM platform and community are highly unique and poised for continued growth both organically and through M&A, and we are thrilled to support Coupa on its mission to digitally transform the Office of the CFO." - Brian Jaffee, Partner (Thoma Bravo)

Company Details (Acquirer - Thoma Bravo)

Thoma Bravo is a prominent American private equity firm, specializing in investments in software and technology-enabled services sectors. Established in 1980, the firm is renowned for its buy-and-build strategy, acquiring leading tech companies and strategically expanding them. The firm continually demonstrates a commitment to driving innovation and economic growth within the tech industry, investing in more than 450 software and technology companies representing over $250 billion of value.

Founded in: 1980, headquartered in: San Francisco, CA and Chicago, IL (USA)

CEO: Orlando Bravo Employees: 100-130 (approx.)

Assets Under Management: $131 billion (as of June 30, 2023)

Recent Transactions: Proofpoint (Acq. for $ 12.30B in Apr 2021), Anaplan (Acq. for $ 10.70B in Mar 2022), RealPage (Acq. for $ 10.20B in Dec 2020)

Company Details (Target - Coupa Software)

Coupa Software is a BSM platform that helps businesses of all sizes manage their spending across all categories. It offers procurement, invoicing, and expense management features that can help businesses reduce costs, improve visibility, and enhance compliance. Coupa's platform is highly configurable and integrates with other ERP and financial systems. Coupa's customers include Fortune 500 companies that have achieved significant results, such as reducing procurement costs by 10%, automating invoicing and reducing processing time by 50%, and lowering employee expense processing costs by 25%.

Founded in: 2006, headquartered in: San Mateo, CA (USA) CEO: Rob Bernshteyn Employees: 3,000+ (approx.) Market Cap: $6.2 billion (as of February 28, 2023)

EV: $7.45 billion (as of February 28, 2023)

Projections and Assumptions

Short-term Consequences

The acquisition of Coupa Software by Thoma Bravo, LP, marks a significant milestone in the realm of business spending management. Coupa Software, already a leader in this domain, is poised for substantial growth under the stewardship of Thoma Bravo, known for their prowess in the financial technology sector. Thoma Bravo's extensive experience is set to be a catalyst for enhancing Coupa Software's already robust business model.

Historically, Thoma Bravo has brought about transformational changes in software companies it acquires, often characterized by strategic management shifts, streamlining operations through layoffs, and implementing cost-cutting measures. While these actions may seem rigorous, they are geared towards optimizing the fundamentals of the acquired companies, ensuring they are finely tuned for sustainable growth. In the case of Coupa Software, such measures are expected to further strengthen its market position and financial performance.

A particularly intriguing aspect of this acquisition is the integration of Llamasoft, a supply-chain management company recently acquired by Coupa Software. Given the recency of this acquisition, the full integration of Llamasoft's services into Coupa Software's existing business model is still in progress. Thoma Bravo's expertise in navigating complex integration processes adds an exciting dimension to this development. With their guidance and proven strategies, there is immense potential for Coupa Software to harness the synergies between the two entities, ultimately leading to enhanced offerings and market presence.

In conclusion, the acquisition of Coupa Software by Thoma Bravo signifies a new chapter in the evolution of business spending management. With Thoma Bravo's seasoned leadership and commitment to growth, Coupa Software is poised to thrive and solidify its position as an industry leader. As the integration of Llamasoft unfolds, we anticipate a strategic and successful alignment of capabilities that will benefit both Coupa Software and its valued clients.

Long-Term Upsides

Despite the continuing war in Europe and turbulent oil price, inflation across the Western world keeps falling and expectations for high future interest hikes in the U.S. remain conservative. Nevertheless, the new leadership of Coupa Software has announced layoffs in late May 2023 in order to balance future growth and profitability. That would position the BSM development company for higher margins and sustaining any unexpected instabilities in the mid-to-long term.

Coupa’s stock price plummeted in Q4 2022 from the highest levels of $350 during the pandemic to around $50 when the takeover was announced. Thoma Bravo went on a take-private spree at the end of 2022 leveraging the tech stock crash acquiring similar size companies to Coupa such as Anaplan, Ping Identity and ForgeRock.

The growth Coupa has seen in Europe puts it in a healthy trajectory for long-term returns. On June 19, 2023 it was announced that the company managed over €1.4 trillion of cumulative business spend across the old continent. Helping companies cut costs during times of uncertainties has proven beneficial with a growth of 25% across EMEA adding companies like Villeroy & Boch AG and Hargreaves Lansdown to its customer list.

Now as a private company, Coupa can fully focus on profitability and improving its stance across a very competitive and fragmented industry.

Risks and Uncertainties

Despite a significant drop in Coupa's share price, declining by approximately 75% year-to-date as of November 22, 2022, certain investors, including HMI Capital Management, expressed their dissatisfaction with the board's decision to accept the offer price of $81 per share. HMI, which owns 4.8% of Coupa, had hoped for a higher valuation at $95 per share. They argued that recent turbulence, such as a notable decrease in Annualized Contract Value (ACV) Bookings and negative Year-over-Year (YoY) Bookings growth in 3Q22 (-12%), along with a downgrade from Piper Sandler, could potentially reverse in 2023 due to Coupa's strong fundamentals. The disagreement between major shareholders like HMI and the board highlights a potential conflict of interest, which could have implications for the deal's final valuation and outcome. This divergence in expectations creates uncertainty regarding the acquisition's actual cost for Thoma Bravo.

Coupa's stock price also experienced a substantial decline from $160 to $45 YoY, making the board consider $81 per share as an appropriate valuation. However, the stock's volatility raises questions about whether this valuation truly reflects the company's intrinsic worth, and whether the acquisition price could have been influenced by market fluctuations.The dramatic fluctuations in Coupa's stock price suggest that the market's perception of the company is uncertain. This uncertainty could impact Thoma Bravo's acquisition strategy and its willingness to negotiate a higher price, potentially affecting the deal's final terms.

Coupa's profit margins are particularly susceptible to fluctuations in foreign exchange rates, as well as challenges in the global market, such as rising inflation, increased protectionism, and central bank austerity measures. These factors pose a threat to the company's short-term profitability.The global economic landscape is complex, and Coupa's exposure to foreign exchange risks and economic uncertainties can affect its financial performance. Thoma Bravo must carefully assess how these external factors could impact the company's operations and profitability following the acquisition.

Lastly, one of Coupa's critical concerns has been its ability to secure new VIP ACV clients. The company faces risks related to subscription payments due to transaction delays and the delivery of value-added services with immediate payment requirements.Coupa's challenges in acquiring new clients may impact its revenue growth and overall success. Thoma Bravo needs to evaluate whether its acquisition strategy includes plans to address these issues and how they can enhance Coupa's client acquisition efforts post-acquisition.

“Our partnership with Coupa will leverage Thoma Bravo’s deep software expertise to help accelerate growth, drive continued investment in product innovation, and better serve the company’s world-class customer community. We look forward to building on Coupa’s strong track record of success,” - Holden Spaht, Managing Partner (Thoma Bravo).



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