Posted on Wednesday, Feb 20th 2019
IT Business Management firm Apptio has had a roller coaster ride in the past few years. Founded in 2007, Apptio had listed on the Nasdaq in 2016. The company continued to gain valuation while being listed. But last year, it agreed to be acquired by private equity firm Vista Equity Partners in a move that has been questioned by shareholders. Late last year, shareholders even filed a lawsuit challenging the acquisition.
Prior to getting acquired, Apptio had announced its third quarter results that surpassed market expectations. Revenues for the quarter grew 26% over the year to $59.2 million compared with the Street’s forecast of $58 million. The company continued to incur losses and ended the quarter with a net loss of $4.6 million. Adjusted earnings came in at $0.05 per share, compared with the Street’s forecast of $0.03 per share.
By segment, Subscription revenues grew 26% to $49.6 million and accounted for 84% of total revenues. Services revenue grew 27% over the year to $9.6 million.
For the fourth quarter, Apptio forecast revenues of $61-$62 million with non-GAAP earnings of $1 million. It expected to end the year with revenues of $233.3-$234.3 million and a break-even non-GAAP operating income of $7.4 million. The market was looking for revenues of $60.77 million for the quarter and revenues of $231.85 million for the year.
Despite the impressive results, in a surprising move, Apptio announced plans to be acquired by private equity firm Vista Equity Partners for an estimated $1.94 billion. As part of the deal, Apptio shareholders were to receive $38 per share, translating to a 53% premium at the time of the announcement. According to Apptio’s management, the merger will help Apptio provide immediate liquidity to its shareholders at a significant premium while ensuring that it continues to deliver product innovation and geographical expansion. It planned to leverage Vista’s expertise in growing SaaS businesses, along with the added flexibility that accompanies a private company to help with its growth. Vista will benefit from the acquisition as Apptio’s services complement its existing portfolio in IT business management and offer it inroads into smaller customers with annual revenue of less than $1 billion.
But the merger announcement has raised questions from the shareholders. A month before Apptio’s result announcement, Apptio’s share had traded at a life high price of $41.36. Analysts had a target of $40 for the stock. While the sale did come at a 53% premium on the trading price, shareholders are questioning if Apptio’s board did enough to secure the best deal for the company. Shareholder rights law firm Johnson Fistel, LLP launched an investigation into the transaction. In December last year, some shareholders even filed a lawsuit against Apptio alleging that Apptio and its directors had omitted information about the proposed deal in a proxy statement, including projected financial information and status of non-disclosure agreements. The shareholder alleges that the proxy statement is false and misleading and is requesting for an order to prevent the merger. Apptio believes that the lawsuit has little merit.
Apptio had been venture funded till 2016 when it went public. Prior to listing, Apptio had raised $136 million in funding from investors including T. Rowe Price, Shasta Ventures, The Hillman Companies, Madrona Venture Group, Greylock Partners, Janus, 137 Ventures, Andreessen Horowitz, and Cisco. Its last private funding round was held in 2013 when it was valued at $600 million. In September 2016, Apptio went public and raised $96 million by offering 6 million shares at $16 each, securing a valuation of $610 million. The stock had a rather lackluster period in the first few months of listing, but it had soared to a life high of $41.36 last year.
This is not the first buyout by Vista. It had bought Ping Identity in 2016 for $600 million and Marketo for $1.8 billion. Last year, it had sold Marketo to Adobe for $4.8 billion. It may have similar plans for Apptio as well. What do you think Vista has planned for Apptio? Will it look for additional companies to acquire to beef up Apptio’s product coverage before it looks to either sell it or take it public again? If so, what startups do you think should Apptio acquire?
This segment is a part in the series : Billion Dollar Unicorns
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