Silver Lake set to take over software company Qualtrics in $12.5bn deal
Buyout with Canada’s largest pension fund is expected to be one of biggest this year
US private equity group Silver Lake has agreed to buy Qualtrics for $12.5bn alongside Canada’s largest pension fund.
The takeover is expected to be announced on Monday morning, according to sources familiar with the matter. It marks the largest private equity buyout of the year as rising interest rates make it increasingly difficult to finance large-scale takeovers.
It comes as Qualtrics owner SAP divests its 71 per cent stake as part of a restructuring of the German software group.
Silver Lake has assembled a large group of equity co-investors to lower the financing burdens of the deal. The manoeuvre has helped talks progress despite a dearth of buyout financing due to rising interest rates and concerns about global economic growth. The group will pay $18.15 per share, which values Qualtrics at $12.5bn, the people said.
Equity financing for the deal is expected to be more than $10bn, while debt will be $1bn, according to people with direct knowledge of the takeover. The lack of leverage is expected to offer financial flexibility for new growth investments.
Qualtrics pioneered specialised software analytics tools that help companies respond to their online customers. It generated $1.5bn in annual sales last year, a 36 per cent increase, with more than 80 per cent of those revenues coming from recurring subscriptions.
The consortium of investors investing alongside Silver Lake includes CPP Investments. Ryan Smith, the billionaire co-founder of Qualtrics who in 2018 sold the Utah-based software group to SAP for $8bn, is expected to also participate in the deal, according to sources.
SAP listed Qualtrics three years later and this year notified shareholders of its plans to divest its majority stake. Silver Lake, which already owns more than 4 per cent of Qualtrics shares, signalled interest in taking the business private in January.
This month, it presented a formal offer to buy the company for $12.4bn, a 73 per cent premium to the group’s trading price before SAP made its divestiture plans public.
Smith is the chair of Qualtrics and one of its largest shareholders with a stake worth more than $200mn, according to securities filings. He is expected to have a meaningful equity interest in the private company. In 2020, Smith acquired the National Basketball Association’s Utah Jazz for nearly $1.7bn.
Silver Lake has been close to Qualtrics for years and has made large investments alongside Smith before.
Egon Durban, co-chief executive of Silver Lake, has acted as a director on the Qualtrics board since its spin-off from SAP was completed. Zig Serafin, Qualtrics’s current chief executive, is expected to remain in the role.
In 2021, the private equity group led an investment in a property management software company alongside Smith. Silver Lake has a long history of investing with entrepreneurs, working with Michael Dell to take his personal computer company private in 2013.
Silver Lake declined to comment. Representatives for Qualtrics and CPP Investments could not immediately be reached for comment.
US regulators say bank closed today by State Authority: US Fed says Deposit Insurance Fund to support uninsured depositors
- NY Dept of Financial Services takes over bank
- NY DFS says it is collaborating closely with other regulators
- Bank depositors will be made whole
A statement was released by Secretary of the Treasury Janet Yellen, Federal Reserve Board Chair Jerome Powell, and FDIC Chairman Martin Gruenberg, which read in part: "We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank (SIVB), no losses will be borne by the taxpayer. Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law. Finally, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors. The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today's actions demonstrate our commitment to take the necessary steps to ensure that depositors' savings remain safe." Related () -
Federal Reserve Rolls Out Emergency Measures to Prevent Banking Crisis
Depositors will have access to all of their money starting Monday, regulators say
Federal regulators rolled out emergency measures Sunday night to stem potential spillovers from Friday’s swift collapse of Silicon Valley Bank, including measures to backstop all depositors.
Regulators announced the action in a joint statement from Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell and Federal Deposit Insurance Corp. Chair Martin Gruenberg. The group said that depositors at SVB will have access to all of their money on Monday.
“After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the president, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, Calif., in a manner that fully protects all depositors,” they said. “Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”
The Fed said it would make additional funding available to banks to ensure they have “the ability to meet the needs of all depositors” through a new “Bank Term Funding Program,” which will offer loans of up to one year to banks that pledge U.S. Treasury securities, mortgage-backed securities and other collateral.
Barron’s Weekend Summary: Silicon Valley has had its share of big personalities
Cover Story:
Silicon Valley has had its share of big personalities, from Steve Jobs to Marc Andreessen, but even among this cohort, Marc Benioff stands out; and he’s fighting to put Salesforce the high-profile enterprise software company that just dropped an outstanding earnings report, back on top. The earnings report and accompanying guidance was a shot back at Wall Street and, to Benioff’s mind, a vindication of his efforts to right the Salesforce ship, which has been listing. “We needed that,” a Salesforce executive said to me after the earnings report, with palpable relief in his voice.
Interview:
-This week, Barron’s interview features Barnaby Wilson, a London-based managing director and portfolio manager at Lazard Asset Management. He takes a tailored approach to growth-stock investing, focusing on companies that produce cash-flow returns on investment at a low- to midteens percentage rate. His favorite companies are capital-light, meaning they don’t need to invest large sums in heavy equipment. Wilson and his team value companies on a discounted-cash-flow basis, investing only in those that sell at a discount to their public market value. The team also looks for companies with a competitive moat.
Tech Trader:
-Dell Technologies recently traded for seven times projected fiscal 2024 profits, the lowest valuation of any tech company I track. The stock trades at 0.5 times enterprise value to revenue, again among the lowest readings of any tech company. Dell, founded nearly 40 years ago by namesake Michael Dell, is cheaper than PC rival HP, or enterprise hardware provider Hewlett Packard Enterprise, or IBM (IBM), or disk-drive stocks, or almost anything else.
Of course, there are reasons for the low valuation. The PC market is in a deep post-Covid temper. And corporate enterprise spending on other stuff Dell makes—servers, storage systems, security software, and the like—is also under pressure, as IT departments tighten their belts in anticipation of a slowing economy.
The Trader:
-On March 1, Okta, whose software helps companies securely manage access by employees, reported adjusted fourth-quarter earnings of 30 cents a share, beating analyst forecasts for nine cents a share. (According to generally accepted accounting principles, the company lost 95 cents a share, due to stock-based compensation expenses.) Sales of $510 million also beat expectations, and Okta said it would earn 77 cents a share for its 2024 fiscal year on sales of $2.2 billion, an 18% rise from the year before. Investors were thrilled, and the stock has jumped 15%, to a recent $82, since the release.
-Buybacks have shown no sign of letting up. Total spending on share buybacks by S&P 500 companies is on pace to hit $900 billion this year, according to LPL Financial, just a touch lower than it was in 2022, when companies spent $922 billion. The number is far more than the $500 billion spent on repurchases during pandemic-stricken 2020. There’s a good reason for companies to continue their buyback binge. Biden’s proposal, for one, is still just a proposal, and the stock market’s decline last year has left many companies with much cheaper stocks than they had at the end of 2021.
Features:
-Norfolk Southern’s train derailment in East Palestine, Ohio unleashed vinyl chloride and other toxic chemicals into the surrounding area. Just a little over a month later, another train derailed in Ohio, this time not posing a threat to public health. The legal liability system calls for lawsuits to be brought against Norfolk Southern and others to compensate those who were harmed by the accidents. Federal and state regulators also reacted by proposing various safety regulations to help prevent future rail accidents.
-Regulators shut down Silicon Valley Bank to protect depositors following a cash crunch. The Silicon Valley-based bank is the second-largest FDIC-insured bank by assets to fail and the largest since 2008 when Washington Mutual collapsed, according to Dow Jones Market Data. SVB has $212 billion in assets; Washington Mutual had $307B in assets.
European Trader:
In Europe, Zalando is trying to do for fashion what Amazon did for books more than two decades ago—crack the code for selling to the masses online. Clothes are a little trickier to sell online. People still like to buy them in person because the feel, the fit, and the small details matter so much. Returns from online purchases are more frequent, especially when you can’t try things on before you buy.
Zalando’s answer is to become the go-to platform between consumers, retailers, and fashion brands. Zalando works with more than 6,500 international brands in 25 European countries. Like Amazon, it shares logistics with partners. It also offers its own private-label clothes.
Emerging Markets:
-GDP in Vietnam growth hit a 25-year high of 8% last year. Foreign direct investment surged to $22B as multinational corporations sought alternatives to China. So why is its stock market barely flickering? Global emerging markets have rallied by 9% since Nov. 1. The VanEck Vietnam exchange-traded fund did nothing. It’s down by half from a peak in early 2022. The culprits are usual suspects for meltdowns in emerging markets, and not only emerging markets: overleveraged real estate and political shifts that may not be in investors’ favor.
Commodities:
-Lithium demand growth is accelerating. Lithium production has risen at roughly 12% a year for the past 20-plus years. That is an incredible rate for a commodity. Global copper production has grown 2% to 3% a year on average over the same span. Steel demand has grown at about 4% a year on average.
Citi expects benchmark lithium prices to remain at about $30,000 a metric ton in the long run. That’s what it will take to incentivize the industry to develop the new mines and assets required to meet growing demand.
Lithium prices were roughly $7,000 a metric ton in 2021.
Streetwise:
-Jack Hough wants to beat the stock market. And Jonathan Golub, chief US equity strategist at Credit Suisse has some ideas to help him put. Investors who can commit for 10 years or more should stick with stocks, but their returns are likely to be lower than they’re used to, says Golub. Near term, defensive stocks don’t look great. Big tech is worse. Favor consumer stocks and healthcare. And if you’re worried about a market swoon, buy a hedge, which for now happens to be cheap. At the center of Golub’s outlook is something called uninversion, which sounds like yoga, and rightly so, because I might pull a hamstring trying to explain it. Long-bond yields are currently lower than short ones; the 10-year Treasury recently paid less than 4%. That’s an unusual condition known as an inverted yield curve—“curve” referring to the shape of yields plotted on a graph. It can mean that investors expect the economy to slow. They’re usually right.