Collaboration software maker Smartsheet fields buyout interest, sources say

Smartsheet

18/07/2024 21:08

(Adds share reaction in paragraph 4)
    By Milana Vinn and Anirban Sen
       July 18 (Reuters) - Smartsheet  SMAR.N , a U.S. maker of
workplace collaboration software with a market value of $6.6
billion, has tapped investment bankers after attracting
acquisition interest from buyout firms, according to people
familiar with the matter. 
    The Bellevue, Washington-based company is working with
Qatalyst Partners to review approaches from private equity
firms, the sources said. Smartsheet has not decided whether it
should launch a sale process and it is possible that it opts to
stay independent, the sources added.  
    The sources requested anonymity because the matter is
confidential. Smartsheet and Qatalyst did not respond to
requests for comment.
    Smartsheet's shares rose on the news and ended trading in
New York on Thursday up 5.5% at $47.81.
    Buyout firms have been actively targeting deals in sectors
such as technology and services this year, after sitting on the
sidelines for most of 2023 due to high interest rates that made
financing of leveraged buyouts tougher. Private equity deal
volumes jumped about 41% during the first half of the year,
driven by several take-private deals. 
    Smartsheet's software allows organizations to manage, track
and automate their workflow using a single platform, offering
more features and capabilities than Microsoft's  MSFT.O  Excel. 
    It focuses on big corporate clients that have complex
operations, such as Pfizer  PFE.N , Cisco  CSCO.O  and American
Airlines  AAL.O , serving 85% of the Fortune 500 companies,
according to its website. Some of its competitors offering
similar products, like Asana  ASAN.N  and Monday.com  6B6.SG ,
target smaller companies. 
    Smartsheet invests in its growth at the expense of its
bottom line, generating strong sales while posting losses. It
has been trimming these losses as it improves its profit
margins. 
    The company reported revenue of $904 million in the fiscal
year ending Jan. 31, up from $714 million a year earlier, while
narrowing its pre-tax losses from $213 million to $96 million.
It had cash on hand of $334 million at the end of April and
carried no debt.
    Banks are reluctant to lend to companies that use up their
cash flow, making their leveraged buyouts more challenging for
private equity firms to finance. 
    In a workaround, some buyout firms have turned to so-called
shadow banks for financing — a catch-all term for investment
firms that operate outside the banking sector. These lenders
operate without the supervision of banking regulators and have
the flexibility to provide loans that hinge less on a company's
cash flow and more on the sales it generates, often referred to
as an annual recurring revenue loan.
    In a sign of how risky this debt can be, private equity firm
Vista Equity is in talks to cede control of its educational
software platform Pluralsight to its lenders after the annual
recurring revenue loan it took on following its $3.9 billion
acquisition soured, Reuters reported earlier this month. 

 (Reporting by Milana Vinn and Anirban Sen in New York; Editing
by Lisa Shumaker)
 ((Anirban.Sen@thomsonreuters.com; Twitter: @asenjourno; Reuters
Messaging: Signal/Telegram/Whatsapp - +1-646-705-9409))