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Thoma Bravo’s $8bn Acquisition of Coupa Software

By Mohammad Faisal Zia, Priyanshu Srivastava, Deepankumar Sakthivel and Amarthya Chandrappa (University of Warwick), Pierre Six, Mathilde Heibig and Jingying Liu (HEC Paris)

Photo: Clay Banks (Unsplash)


Overview of the deal

Acquirer: Thoma Bravo

Target: Coupa Software

Implied Equity Value: $6.2 billion

Total Transaction Size: $8.0 billion

Closed date: Expected H1 2023

Target advisors: Qatalyst Partners, Freshfields Bruckhaus Designer

Acquirer advisors: Goldman Sachs & Co., Piper Sandler, Kirkland & Ellis

Thoma Bravo, a leading software investment firm, has chosen to acquire Coupa Software in an all-cash transaction, where the target company will become a privately held company. This also includes a minority investment from an affiliate of sovereign wealth fund Abu Dhabi Investment Authority. As a result of the agreement, Coupa shareholders will receive $81 per share in cash, which represents a 77% premium to Coupa's closing stock price on November 22, 2022 - the day before media speculation of the transaction.

“Our shared vision, combined with Thoma Bravo's strategic and operational expertise, will enable Coupa to continue driving innovation, better serve its customers and accelerate important growth initiatives during this next chapter as a private company” - Brian Jaffree, Partner (Thoma Bravo)

Company Details (Acquirer - Thoma Bravo)

Thoma Bravo is an American private equity and growth capital firm that provides capital and strategic support to growing software and technology companies. It has offices in San Francisco, Chicago and Miami. In December 2021, it was reported that Thoma Bravo had taken more multi-billion-dollar public companies private in the past year than any other buyout firm. Over the past 20 years the company has acquired or invested in over 380 companies representing over $190 billion in enterprise value.

Founded in 2008, headquartered in Chicago, Illinois

CEO: Orlando Bravo

Number of employees: 110 (directly), 45,000 (indirectly)

Assets under management: $114bn (September 2022)

Company Details (Target - Coupa Software)

Coupa Software Inc. delivers cloud-based spend management BSM solutions. It manages expenditures for businesses and provides services to optimize supply chains. The platform offers procurement, expense and invoice management, spending analysis and supplier and contract management.

Founded in 2006, headquartered in San Mateo, California, USA

CEO: Rob Bernshteyn

Number of employees: 3,076

Market Cap: $6.0bn (as of 21/12/2022)

EV: $7.3bn

LTM Revenue: $818.1mn

LTM EBITDA: $142.5mn

LTM EV/Revenue: 9.0x


Projections and Assumptions

Short-term consequences

Thoma Bravo’s acquisition of Coupa Software at its current stage is highly exposed to uncertain macroeconomic conditions. Inflation rates have increased to levels not seen in years. The subsequent decrease in demand for Coupa Software’s products and services, as clients scrutinise their expenses, and increase in operating costs will likely reduce Coupa’s liquidity, and limit their access to credit or other forms of capital. It is also likely that the Federal Reserve will continue to increase interest rates into 2023, which coupled with reduced government spending and financial market volatility, will have adverse business consequences. Moreover, Coupa Software has a concentrated customer base, and the loss of its key customers to the uncertainty of this acquisition will have a significant negative impact on its revenues, reputation, and ability to obtain new customers. The onslaught of the pandemic and the poor macroeconomic environment will accentuate these consequences.

The acquisition could pose integration challenges and divert the attention of management, disrupting the business. If the integration of acquired personnel, operations, and technologies is unsuccessful, the anticipated benefits from Coupa Software will not be achieved. Some of the factors that will need to be monitored in the short-term to gauge the success of this transaction include business and customer relationships post-acquisition, potential loss of key employees due to uncertainty, use of substantial portions of cash to consummate the acquisition, and inability to benefit from acquired technologies or services in a profitable manner.

The market for business-spend management software is highly competitive with low barriers to entry for some software or service organisations. Oracle, SAP, and Workday are key operators in this space that have long-standing relations with many customers. It will be difficult for Coupa Software to lure these customers into adopting their cloud-based software – especially, given that aforementioned legacy competitors have greater brands, longer operating histories, larger budgets, and significantly more resources. The fierce competition may reduce Coupa Software’s ability to compete with the price offerings of legacy vendors and inadvertently fail to attract customer demand.

Additionally, if the proposed acquisition fails to complete, Coupa Software will suffer severely. Under certain conditions, it will be required to pay the termination fee of $200 million. It will remain liable for significant expenses related to the transaction. The attention of management, if diverted to the acquisition rather than their own operations, could detract from the pursuit of opportunities that could have been beneficial. Until the transaction closes, the Merger Agreement will restrict Coupa Software from taking specified actions without the consent of the acquirer. In addition, lawsuits may be filed against Coupa Software and the board of directors arising out of the proposed combination, which may delay or prevent the transaction. The unpredictability of this transaction will make it hard to predict future financial results and the efficacy of synergies.

Long-term Upsides

The current macroeconomic climate including, among other factors, weak consumer demand and the war in Ukraine, has led to a downturn in the valuation of tech companies over the past year.

This transaction should therefore give Coupa Software Inc. a better future outlook than its standalone prospects, according to Roger Siboni, Coupa's lead independent director. Indeed, even though Coupa Software has rapidly grown for the last decade, the company remains significantly smaller than SAP Ariba, one of its main competitors and a leading firm in this area, and its growth rates have been meaningfully decreasing. Thoma Bravo, which has been investing in tech companies for decades, has a history of acquiring companies and setting up long-term growth strategies. In Coupa Software’s case, Thoma Bravo looks to grow the business inorganically through M&A.

This deal can also be viewed as an opportune purchase for Thoma Bravo, who have capitalised on the tech valuation rut, allowing the investment firm to make significant profit in the long run, when the economy picks up.

This acquisition comes at a time when Coupa Software’s growth has been slowing down and the company is now looking to increase its profitability. Following this transaction, Coupa Software Inc. will be delisted. This means that the company will become privately held, allowing it to focus on profitability, as expressed in its most recent financial statements, rather than focusing on meeting shareholders’ expectations or expanding.

Risks and Uncertainties

Although Coupa’s share price has taken a beating, falling ~75% YTD (November 22, 2022), some investors such as HMI Capital Management, didn’t hide their disappointment when the board agreed to the offer price of $81 per share.

HMI, which owns 4.8% of Coupa, was hoping for $95 per share, arguing that the recent turbulence (i.e. new ACV (An,nualised Contract Value) Bookings having meaningfully declerated, with negative YoY Bookings growth in 3Q22 of -12%, and the Piper Sandler downgrade) would turn into upsides beginning in 2023 thanks to its strong fundamentals.

The board, given the precipitous decline of Coupa’s stock price (from $160 to $45 YoY), felt that $81 per share was the ideal evaluation of Coupa (30% above the market price, last trading day).

Given that the deal was subjected to a shareholder vote at Coupa, there was uncertainty that particular shareholders (i.e. HMI) and Thoma Bravo would find a consensual share value (perhaps pushing the price above Thoma Bravo’s initial proposal). Therefore, it is possible that Thoma Bravo acquired Coupa at a higher price than initially anticipated.

Coupa’s margins are also highly sensitive to fluctuating foreign exchange rates, volatility in the complex global market of increasing inflation, hardened protectionism and central bank austerity, threatening the business’ ambitions to increase profitability, at least in the short-term. Fortunately, the business will no longer be forced to cave under shareholder pressure due to lagging performance.

Last but not least, it’s open to question if this acquisition by Thoma Bravo will tackle one of the company’s most important issues: signing new ACV clients. The Achilles heel of Coupa has been the decline of new VIP ACV clients, subscription payment risks due to transaction delays and additional value-added services with immediate payment.

“This transaction is the result of a deliberate and thoughtful process that included engagement with both strategic and financial parties ” - Roger Siboni, Lead Independent Director (Coupa Software)


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