Timid post-Covid tech cleanup begins with mini-LBO

Squarespace

14/05/2024 13:00

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
    By Robert Cyran
       NEW YORK, May 13 (Reuters Breakingviews) - There’s
plenty of risky cleanup to do among public technology companies
mired in a post-Covid-19 funk. The $6.6 billion buyout of
website builder Squarespace  SQSP.N  by Permira, announced on
Monday, might seem to fit the mold. But a punchy headline price
is much more cautious than it appears.
    Tech dealmaking and valuations spiked during the pandemic.
Squarespace took part, opting for a direct listing in 2021;
shares rocketed from $48 up to over $64 a month later. It’s been
all downhill from there. Even with a 15% premium, Permira’s
offer comes in slightly below that opening price.
    Nonetheless, that equates to 20 times
Squarespace’s estimated 2025 EBITDA of $340 million, according
to LSEG. Take that eye-popping multiple alongside news that
long-time cash inferno Peloton Interactive  PTON.O  has
attracted private equity suitors, as well as recent
take-privates like Perficient  PRFT.O , and it may appear that
heady days are back. But this deal is much more
down-to-earth, thanks to the nature of the website development
business. 
    Chief executive Anthony Casalena founded Squarespace in his
dorm room, and didn’t take outside capital until Accel invested
in 2010. General Atlantic then invested in 2014. The company’s
ability to fund growth largely through internally generated cash
flow is why Casalena still owns a big chunk of the company. He
maintains voting control through dual-class shares.
    That makes Squarespace different from the frothiest of the
money-burning tech high-fliers that went public in a fit of
pandemic-era euphoria. To boot, analysts expect EBITDA to
continue growing by about 30% annually.
    And Permira doesn’t have to shell out for the entirety of
the company. Casalena is rolling over a “substantial majority”
of his one-third stake, with Accel and General Atlantic
retaining a smaller chunk of their investments. Assume the CEO
rolls 90% of his holdings, while the other backers retain half
because they want some liquidity on their long-term investment,
and Permira is only on the hook for around $3.5 billion.
Squarespace’s record of generating cash and the fact that most
of its revenue is recurring means private lenders are also
willing to pony up a chunk: Blackstone  BX.N , Blue Owl Capital
 OBDC.N  and Ares Capital  ARCC.O  are supporting the deal.
    It’s a tidy arrangement - but it’s not the
swing-for-the-fences kind of bet on a struggling company that
would really start to clear out the backlog of tech stragglers.
    Follow @rob_cyran on X
         
    CONTEXT NEWS 
    Squarespace said on May 13 it would go private in a $44 per
share deal that values the company at $6.6 billion. Including
debt, the transaction values the website builder at $6.9
billion. The price is a 15% premium to the closing price of
Squarespace shares on May 10.
    Founder and chief executive Anthony Casalena will reinvest
a substantial majority of his stake in the company. Investors
General Atlantic and Accel will also reinvest as part of the
deal.
    Squarespace went public in 2021 in a direct listing, opening
on its first day at $48 a share.

 (Editing by Jonathan Guilford and Sharon Lam)
 ((For previous columns by the author, Reuters customers can
click on  CYRAN/ 
robert.cyran@thomsonreuters.com; Reuters Messaging:
robert.cyran.thomsonreuters.com@reuters.net))