Thoma Bravo, the U.S. based buyout firm, just completed their acquisition of Coupa culminating a year of heavy dealmaking in tech companies. Thoma Bravo has struck a number of deals this year for publicly listed Saas companies such as Anaplan and ForgeRock, capitalising on a correction in the stock price of tech companies. The private equity group paid $81 a share valuing Coupa at $8bn, a massive decline from the 2021 high of $27bn.
This deal is a representation of the collapse in software valuations as the economy softens and interest rates increase. The buyout was done at a multiple of eight times forward revenue far from the 2021 trading multiples of 15 to 20 times annual revenue for software companies. Despite some criticism and resistance from shareholders with regards to valuation the Coupa management has made the right choice to go forward with the buyout. As current software bookings, an indication of future revenues, have gone flat in the US and have collapsed in Europe, remaining a standalone company would have been tough for the corporate expense management software provider.
From Thoma Bravo’s perspective this seems to be a very good acquisition despite the considerable premium it paid partly due to competition from Vista. Saas companies such as Coupa present a very lucrative opportunity for buyout funds. They have a strong annuity-like revenue stream in the form of customer subscriptions and the lifetime value of each customer is very high due to the possibility of upselling existing customers. This leads to excellent cash flow which can pay down the debt involved in such deals. The main focus for Thoma Bravo is likely to be getting Coupa to profitability, which will most likely be done through a cut in headcount and sales and marketing spend. Additionally, they will look for synergies with their existing portfolio of companies in the long run. Overall, the acquisition fits Thoma Bravo’s buy and build approach as it gives them an opportunity to add to the broad range of software services their existing portfolio of companies offer.