Coupa goes private with big spender Thoma Bravo in $8 billion buyout

Business spend management vendor Coupa revealed today it has agreed to an $8 billion acquisition by private equity giant Thoma Bravo. Coupa shareholders will be paid $81 in cash per share, a 77% premium on the NASDAQ-listed stock price before it began to lift after rumors of an impending deal broke in late November. According to reports, the successful acquirer outbid rival firm Vista Equity to secure the deal.

The Abu Dhabi Investment Authority (ADIA) is also participating in the deal through a wholly owned subsidiary, with what is described as "a significant minority investment." According to a Bloomberg report, a consortium of lenders are stumping up $2.6 billion to help finance the buyout. The transaction is expected to close in the first half of 2023, subject to the usual conditions and approvals.

The news was announced on the same day as Coupa's Q3 earnings report, and there was no new forward guidance or earnings call with financial analysts as a result. However a slide deck accompanying the acquisition announcement emphasized a "downturn of business momentum" in the Annualized Contract Value (ACV) of Coupa's bookings and a discrepancy between Wall St analyst expectations and Coupa's own more pessimistic long-term business projections. Most notably, it shows projected revenue growth for the current financial year of 17%, compared to 34% last year, falling to 12% in FYP24 and 15% in FY25, while Free Cash Flow (FCF) margin oscillates between 17-22%, taking the total of the two below the 'Rule of 40' target favored by SaaS companies.

Thoma Bravo will want to use these projections to argue the case for its buyout price, which Coupa shareholders can still vote to reject if they decide it's not sufficient. The deck also reveals that the company engaged with 14 prospective acquirers, with the final decision coming between two "fully financed" bids. Coupa's board came to a unanimous conclusion that Thoma Bravo's proposal offered the best value to shareholders. This was despite receiving a letter from activist investor HCI Capital a week ago arguing that the minimum buyout price should be $95 per share, based on a multiple of 9.6x Next Twelve Month (NTM) revenues, which HMI says has been the average achieved in "recent software sponsor take-privates." The $8 billion Thoma Bravo is offering equates to around 8.5x NTM, depending on whose projections you use, which is still a premium over the average SaaS multiple for public companies, which currently stands at around 6.0x NTM.

Coupa's Q3 results saw total revenues of $217.3 million, up 17% on the same quarter a year ago, while subscription revenues were up 20% at $198.4 million. GAAP operating loss was $77.4 million, compared to $56.1 million for the same period last year, while the non-GAAP equivalents were $16.5 million for the quarter this year and $27.9 million last year.

In a press statement, Rob Bernshteyn, Chairman and CEO of Coupa, welcomed the company's new owner and emphasized continuity for its customers:

For more than a decade, we've been building an incredible Business Spend Management Community and have proudly cemented our position as the market-leading platform in our category. We're looking forward to partnering with Thoma Bravo and accelerating our vision to digitally transform the Office of the CFO.

While our ownership may change, our values do not. Every one of us at Coupa will continue to put our customers at the center of everything we do and help them maximize the value of every dollar they spend.

For its part, Holden Spaht, a Managing Partner at Thoma Bravo, added:

Coupa has created and led the large and growing Business Spend Management category. We've followed the company's success for many years and have been impressed by its consistent track record of delivering high levels of value for its global customer base.

We look forward to partnering with Rob and the rest of the management team to keep investing in the company's product strategy while driving growth both organically and through M&A.

As in investor specializing in the software and technology industries, Thoma Bravo is no stranger to enterprise software acquisitions. In recent years it has bought configure-price-quote provider Apttus, to combine it with Conga Software, and application monitoring and observability platform Dynatrace. Other notable names in its portfolio include Anaplan, Medallia, Nintex, Ping Identity, QAD, Qlik, SailPoint, Solarwinds and Talend.

My take

As befits a firm in its line of business, it looks as though Coupa was able to drive a hard bargain, but whether the $8 billion price tag will be enough to satisfy shareholders remains to be seen. Coupa's role as a platform for business spend gives it an early insight into procurement trends, as revealed in its quarterly Business Spend Index, the most recent edition of which forecast "rising risk of recession approaching 2023," as spend decreased 1.9% over the prior quarter. If the company's management is right to extrapolate that trend into a pessimistic outlook for its own short-term growth prospects and the economy as a whole, then shareholders will likely be happy to take Thoma Bravo's money. But if general business optimism persists into the New Year, closing this deal may prove more of a challenge. While $81 per share may seem like a reasonable price in the current market, it's still a big drop compared to the heady peak of $369 achieved in early 2021, and any shareholder who bought in the three years prior to April 2022 will crystallize a loss at the offered price. Some are finding that hard to digest.

For Coupa's customers, all the talk of continuity at Coupa and of "partnership" with Thoma Bravo is designed to reassure. The evidence from other acquisitions by the investor is that its portfolio companies are generally left to get on with the job, so long as they buckle down and keep their focus on solid, profitable growth, supplemented by acquisitions where these make sense. While the new debt burden this deal brings may be unwelcome, on the other hand there's more freedom to be adventurous in continuing Coupa's track record of innovation without the scrutiny of reporting quarterly revenues.

I'm particularly intrigued to see that, as owner of both Conga and Coupa, Thoma Bravo will own platforms that handle both sides of the B2B quoting and procurement process. Maybe nothing will come of that, but I've always felt that there's an enormous duplication of wasted effort in the current adversarial structure of those processes. All in all, there's much to watch out for as this story develops over the coming months and years.