Schroders hits out at Silver Lake’s €2.6bn German tech deal
Top investor cites conflict of interest as US private equity firms compete for Software AG
The largest outside shareholder in Germany’s Software AG said a planned €2.6bn takeover offer by US private equity firm Silver Lake “materially undervalues the company” and criticised the technology group’s handling of the sales process.
London-based Schroders, which owns 8 per cent of Germany’s second-biggest provider of corporate software after SAP, said Software AG’s apparent unwillingness to engage with other potential bidders could raise conflict of interest issues.
In recent weeks the German group has been at the centre of competing from Silver Lake and rival private equity firm Bain Capital via its portfolio company, US-based Rocket Software.
Software AG’s board has recommended Silver Lake’s offer, at €32 per share, despite Bain’s bid of up to €36 per share, saying it offers more certainty than the latter offer. Both are cash bids.
“This offer does not represent a superior offer and therefore Software AG’s management board and the independent takeover committee of the supervisory board are not in a position to engage,” Software AG said on Tuesday about Rocket Software’s offer.
Schroders said in a statement that while competing bids for the business validate the long-term investment opportunity, “we are surprised that the takeover committee appears unwilling to engage with potentially higher offers from other interested parties.”
The statement added: “It could be seen as raising potential questions regarding conflicts of interest and whether appropriate fiduciary process is being followed to equally protect the interests of minority shareholders.”
Shares of Software AG traded above Silver Lake’s offer price at around €34 per share on Thursday, a sign that investors anticipate an agreement will ultimately be reached at a higher price.
The company’s executives will hear directly from its shareholders at its annual meeting is next Wednesday.
The competition for Software AG comes as private equity firms are under pressure to deploy the large funds that they raised over the past few years and are having to navigate a competitive landscape amid a scarcity of deals.
Silver Lake first backed Darmstadt, Germany-based Software AG in 2021 via a €344mn investment. As part of the deal, two Silver Lake representatives joined the Software AG board, including Christian Lucas, Silver Lake’s co-head of Europe, the Middle East and Africa, becoming the technology company’s chair.
Software AG announced last month that it had entered into a deal with Silver Lake to be taken private at a price of €30 per share in cash.
The company also said that its largest shareholder, the Software AG Foundation, had agreed to sell a quarter of the company’s stock to Silver Lake.
Software AG Foundation was established in the 1990s by Peter Schnell, the company’s co-founder, and has held just over 30 per cent of the shares.
Combined with Silver Lake’s own share purchases, the private equity firm has now secured a more than 30 per cent stake in the company.
In early May, Silver Lake raised its offer to €32 per share after Software AG said it received a competing offer. Silver Lake’s latest offer values the company’s equity at about €2.4bn; Software AG has about net debt of €230mn.
Silver Lake’s improved bid was followed up by Bain’s Rocket Software announcing publicly its own revised offer of €34 per share, rising to €36 per share if Silver Lake and the Software AG Foundation agree to support the deal by selling their holdings.
Software AG has said that Silver Lake’s representatives recused themselves and an independent takeover committee was formed to assess the deal.
The company, which had €958.2mn in sales last year, with an operating profit of €178.5mn, has said that it prefers Silver Lake’s offer because of the certainty it offers on financing and the fact it knew the private equity group well.
Software AG has held conversations with Bain in recent weeks but does not see the synergies to be gained from a merger between Rocket Software and its own business, a person familiar with the matter said.
Bain has also been buying up shares, amassing around a 10 per cent stake in the company.