LBO thud
Proofpoint is yet another beneficiary of working from home, with businesses trying to secure their remote employees’ computer traffic. The company, which also reported earnings on Monday, said revenue rose 15% in the first quarter compared to the same period last year. Analysts expect its top-line growth to continue, with sales projected to rise mid-double digits through 2023 – faster than, say, Microsoft.
The multiple Thoma Bravo is paying looks reasonable, too. At roughly 12 times last year’s sales, it is in line with Microsoft’s current enterprise value-to-sales multiple, though slightly higher than Palo Alto Networks, another competitor. There are also a couple of quick financial wins that a newly private Proofpoint could consider.
First, the company is helping to maintain its growth by investing in its products, so its earnings are taking a hit. That’s one area where the private equity firm can tune up performance. Thoma Bravo specializes in software and technology deals, so it can help Proofpoint streamline costs and reap the benefits of earlier investments. Second, Proofpoint currently has no net debt, so the private investors can juice returns with leverage, even if it’s only a modest amount.
Overall, it looks like a relatively sober transaction in an excitable merger market. The value of global deals in the first quarter nearly doubled year-on-year to $1.3 trillion, per Refinitiv, partly thanks to frenzied activity by special-purpose acquisition vehicles, known as SPACs. North American private equity firms have a record $976 billion in dry powder, according to Preqin, making competition fierce. Unless another buyer tries to muscle in, Thoma Bravo has shown that even in toppy markets, good deals still exist.