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Thoma Bravo's acquisition of Everbridge


Vice President: Ivan Petkov

Associate: Riccardo Vittorio Perego

Analysts: Adam Hrehovcik, Adwait Rayate, Alessandro Bosco, Leonardo Mottareale, Simon Sandewall


Deal overview


On the 5th of February 2024, Everbridge, an enterprise software company specializing in critical event management and national public warning solutions, entered into a definitive agreement to be acquired by software investment private equity firm Thoma Bravo in an all-cash transaction valued at approximately $1.7 billion. Founded in response to the aftermath of 9/11, Everbridge's mission is to aid in keeping people safe and organizations operational during critical situations. Under the terms of the agreement, Everbridge shareholders will receive $35 per share in cash, representing appr. 60% premium to the company’s volume-weighted average share price over the 90 days preceding the initial deal announcement. The transaction, approved by Everbridge’s board of directors, was initially for $28.60 per share and included a 25-day “go-shop” period which expired on February 29, 2024. Shortly after the expiration of the “go-shop” period, the valuation was updated to the $35 per share. It is expected to close in the second quarter of 2024, subject to customary closing conditions and regulatory approvals. Upon completion, Everbridge common stock will cease trading on public exchanges, but the company will retain its name and brand, continuing its operations. Financial advisor Qatalyst Partners and legal counsel Cooley are representing Everbridge, while Thoma Bravo is advised by legal counsel Kirkland & Ellis.


Key players


Everbridge overview


Everbridge, Inc., founded in 2002 (right after 9/11), is an American enterprise software company dedicated to ensuring personal safety and business continuity during critical events. Offering a suite of Software-as-a-Service (SaaS) products, including mass notifications, IT incident management, travel risk management, and physical security information management, it serves a diverse client base of over 6,500 customers spanning multinational corporations across various sectors such as finance, manufacturing, retail, transportation, energy, and education, as well as national, state, and local government agencies and federal agencies in the United States (most relevant customers: the U.S. Army, West Virginia, the countries of Norway, Peru and Australia). Everbridge's platform sends messages via multiple channels like telephone, text, and email during emergencies, halting once an acknowledgment is received. Also, an app allows emergency managers to track geotagged tweets that contain specific hashtags and use this information to respond to incidents as they occur. Notable instances of the application of Everbridge services include delivering over 10 million messages during Hurricane Sandy in 2012 and providing updates to Boston residents during the COVID-19 pandemic. In 2016, Everbridge went public, raising $90 million in an IPO and becoming a publicly traded company (EVBG) on the Nasdaq stock exchange.


Thoma Bravo overview


Thoma Bravo LP is a prominent American private equity and growth capital firm headquartered in Chicago, renowned for its active involvement in acquiring enterprise software companies. With over $134 billion in assets under management, it stands as one of the largest software investors globally. Thoma Bravo focuses on investing in growth-oriented, innovative companies within the software and technology sectors (mostly in infrastructure and cybersecurity), employing private equity, growth equity, and credit strategies. Leveraging its extensive sector expertise and operational proficiency, the firm collaborates closely with portfolio companies to implement operational best practices and drive growth initiatives. The company specializes in application, infrastructure, and cybersecurity software, utilizing a "consolidation" or "buy and build" investment approach. Over the past twenty years, Thoma Bravo has amassed a significant track record, having acquired or invested in more than 455 companies with a combined enterprise value exceeding $255 billion. The firm’s private companies software portfolio includes approximately 75 firms as of February 2024. Also, it has one of the largest cybersecurity portfolios in private equity, representing approximately $45 billion in total enterprise value.


Rationale


Thomas Bravo’s recent acquisitions in the software sector, including Imperva and Ping Identity, underscore its commitment to investing in companies that provide cybersecurity and identity management solutions. These acquisitions have showcased Thoma Bravo's strategy of consolidating its portfolio to offer comprehensive and integrated solutions to its clients. Moreover, the acquisition of Everbridge provides the firm’s ability to strategically integrate the capabilities of its existing portfolio with Everbridge’s offerings. 


A combination of Delinea's privileged access management (PAM) solutions with Everbridge's platform can enhance security measures and streamline access management processes for organisations. Furthermore, integration of Sophos' products, such as endpoint protection and firewall technologies, with Everbridge's platform can strengthen organisations' defence mechanisms against evolving cyber threats and enhance overall security resilience. 


Thoma Bravo's acquisition of Everbridge represents a strategic move to expand its presence in the cybersecurity and critical event management market. By leveraging Everbridge's capabilities and integrating them with its existing portfolio companies, Thoma Bravo will aim to offer comprehensive solutions that address the growing demand for enhanced public safety and operational continuity in an increasingly uncertain world, given the expansion of artificial intelligence and other emerging macro trends. 


Industry Analysis


The global cyber security market size is projected to grow from $193 billion in 2023 to $533.9 billion in 2032, at a CAGR of 11% (Market.US, 2024). North America accounted for a market value of $67.77 billion in 2022 (GlobeNewswire, 2023). The expansion of e-commerce platforms, the rise of smart devices, and the widespread adoption of cloud technology contribute significantly to the increasing frequency of cyber-attacks, driving market growth.



In the coming years, the growth of adopting enterprise security systems in manufacturing, financial services, banking and insurance is expected to drive the cyber security market (Grand View Research, 2024). The increased usage of devices equipped with the Internet of Things (IoT) and intelligent technologies is expected to increase the number of cyber threats. From this, it is anticipated that organisations need to enhance robust systems in order to counter threats and drive the market growth for cyber security. 


Another trend that is important to signal is the increased adoption of cloud computing, where services are developed on the Analytics as a Service (AaaS) platform, assisting users in identifying and mitigating emerging cyber threats as they arise. 


Until recently, many organisations in need of cybersecurity measures were not fully attentive to the challenges they encountered. Frequently, they perceived the cost and intricacy of taking action as outweighing the necessity for it. However, as cyber-attacks escalate in frequency, the cost-benefit calculus has shifted. With heightened awareness of security and privacy concerns reaching the executive level across various industries, regions, and enterprises of all scales, both providers and investors now find ample opportunities (McKinsey & Company, 2022). 


Finally, there has also been significant research and investment from governments to enhance the security of a huge volume of confidential data and information. For instance, the UK government invested $2.3 billion to execute various network and internet security projects in cyber defence and research (Fortune Business Insights, 2023).


Company analysis


Everbridge is globally the largest developer of critical event management through enterprise-grade software-as-a-service solutions. Currently, over 6500 global customers rely on its Critical Event Management platform (Everbridge, 2023), which integrates resilience solutions together and offers management of the full lifecycle of a critical event. Everbridge has a market share of 30.83% in the emergency-communications market (6Sense, 2024). Its two largest competitors, Rave Alert and InformaCast have 21.62% and 13.35% market share respectively (6Sense, 2024), making Everbridge the most dominant firm in the market by a significant margin. 


Everbridge serves a range of customers with different needs. The following table shows which industries bring the largest proportion of customers to Everbridge. The table also suggests that health-related functionalities form a core of Everbridge’s business, given the nature of its clients.



In terms of geographical presence, over 73% of Everbridge’s sales come from North America, with other notable geographies being the Unted Kingdom, Ireland, France and Japan (Market Screener, 2024). And despite Everbridge’s push towards more expansion in international markets, the geographic distribution of sales has remained relatively unchanged over the last few years. This is probably due to the critical event management market becoming highly saturated with a growing number of competitors. Another burden to international expansion is the high demands for legal compliance since Everbridge is involved in highly regulated industries of healthcare, insurance, and finance, where there are significant regulatory differences among countries. However, there is still some potential for geographic expansion of Everbridge.


Looking at the business model of Everbridge, 89.1% of its revenues come from subscription services, while 6.8% from professional services and 4.2% from software licences (Market Screener, 2024). Having recurring revenues at the core of the business with a dominant market position could be considered a key strength of Everbridge, as it gives rise to predictable cash flows and long-term customer relationships.


Other key strengths of Everbridge include its strong reputation for reliability and scalability thanks to robust infrastructure of data centres around the globe which guarantee high availability even in the case of large-scale emergencies. Another strength of Everbridge is its R&D and innovations, which utilise AI, machine learning and predictive data analytics to better detect and evaluate threats and accurately automate response workflows.


As for the weaknesses, Everbridge faces quite high customer concentration. Despite having a large client base, a large portion of Everbridge’s revenues come from a couple of large customers. The dependence on a smaller number of key clients has implications for business risk and possible volatility in revenues, as the loss of a single customer could have a notable impact on the business. Moreover, a large majority of customers and thus revenues come from the highly saturated US market, which makes diversification of customers base in the domestic market quite challenging.


Looking forward, Everbridge is strategically positioned to capitalise on the rising demand for critical event management solutions globally. As organisations encounter an increasing number of complex and frequent threats, the demand for robust and reliable crisis communication and management platforms is expected to keep growing. Everbridge’s ability to leverage its technological leadership, industry expertise, and customer-centric approach positions it for ongoing success in the critical event management market.


Financial Analysis


After analysing Everbridge’s financials we can confidently say that the company has made significant progress over the past 4 years. Its top line (revenue) has more than doubled from $200.88 million in FY19 to $449.78 million as of FY23 while maintaining its gross margins at a staggering 69%. Unfortunately, despite having such a positive gross margin the company has been incurring losses with Sales & Marketing expenses eating up most of its margin. A solid customer base has been built to date and thus it wouldn’t be wrong to say that the take-private offering by Thoma Bravo might be done to leverage this customer base and make this firm profitable. 


Although the firm is bleeding at the operating level, the net losses are consistently decreasing. From $0.9 million in 2019 to $0.6 million as of FY22, the improvement is commendable. Considering that Everbridge is essentially a SaaS company, its business model is extremely asset-light. Property, Plant, and Equipment (PP&E) which is generally a major chunk of a firm’s assets is merely 0.8% of total assets for Everbridge. An asset-light model helps in rapid scalability and thus is a major factor to consider in take-private deals. Private equity investments are generally done in firms where the business model is proven and is on the brink of a period of rapid growth. Once invested, the private equity firm improves the operational efficiency in the business and tries to grow it exponentially in 3-5 years. Everbridge perfectly fits these criteria.


Coming to some of the financial concerns, the firm has got a lot of deferred expenses stacked up on its balance sheet which can harm the firm’s profitability in the future. Deferred expenses refer to expenses that have been incurred but not capitalised on the income statement. The goodwill on its balance sheet which captures nearly 40% of its assets can also cause challenges in the future if the acquired business fails to flourish. In sum, Everbridge is quite an interesting investment because if turned profitable, it can garner a lot of value for investors but if the management fails to achieve that, the accumulated customer base is of no shareholder value.


Refer to the LBO model below for our forecasts and assumptions:


Using these we create our Operating Model (reach out to The Junior IB or to the Vice President on the deal for the full model).

The results are below:



The LBO model lies upon the assumption that given the market for crisis emergency and incident management platforms is predicted to grow at a CAGR of 6.3% from 2023 to 2033 (Persistence Market Research, 2023) and that Everbidge may not be able to grow at the same pace as global market due to its heavy reliance on the slower-growth region of North America. Our projected revenue growth around 4.5%. In the past, Everbridge EBITDA margins have been very volatile but Thoma Bravo will be aiming to create value mainly through large one-off structural and operational changes that will increase the EBITDA margin in the first year significantly, with limited margin growth from smaller incremental changes in the future. So, the assumptions are that the EBITDA margin will increase to 15% in the first year after which it will grow only at a modest pace of 0.2% a year. It is also important to note that the first-year 15% EBITDA margin seems to be realistically attainable looking at some of the competitors such as Sapiens International (2024) or Opera (2024) who have been able to maintain similar or even higher margins for extended periods of time.


Using these assumptions, the LBO model implies a 19.4% IRR, which is in line with the median target gross IRR of approximately 20% in the private equity industry according to Gompers et. al. (2015). This suggests that the investment meets the standard criteria Thoma Bravo may have on potential profitability of its investments. Despite the significance of the IRR as a measure of investment performance, it is essential to underscore its susceptibility to fluctuations in exit multiples. Therefore, a meticulous consideration of factors influencing exit multiples becomes vital in order to ensure a thorough and realistic evaluation of the investment's financial viability.


Risks and Prospects


One obstacle for Everbridge to overcome in order to increase its operations would be the saturated market in North America, where the company's operations are concentrated. Hence, the limited expansion opportunities paired with the deficiencies in international expansion could prove to be a barrier to making this investment sufficiently profitable for Thoma Bravo, considering the appr. 60% premium on the company's stock that it paid in the transaction.


Even though the growth projections for the industry are strong at the moment with a CAGR of 13.8%, the possible economic downturn in the United States could lower these numbers and, hence, significantly impact the investment's growth prospects. Additionally, given Everbridge's leading position with a market share of 30.83%, some concerns could be raised with regard to the possible antitrust regulations being applied to the company in the US. Since these rulings are made on an individual basis, it is difficult to predict whether they would apply in this situation; however, if divestitures were to be required, this would undoubtedly create a problematic situation for Thoma Bravo.


The addition of Everbridge to Thoma Bravo's vast portfolio in the cybersecurity space has the potential to create a unified, comprehensive product offering and, hence, strong synergies with companies such as Intel 471, Delinea, and Sophos. Furthermore, utilising Thoma Bravo's experience with growing companies similar to Everbridge to decrease its sales and marketing expenses could significantly improve net margins and turn the company profitable.


Another prospect could be to engage in more security and defence projects for the governments in the countries where Everbridge operates. Considering the increased outsourcing of intelligence services by governments (Krishnan, 2011), this expansion trajectory would secure additional contracts and government funding and allow the company to be part of a highly profitable and growing sector.


Given that international operations have not increased to a large degree in recent years, this should be a core focus in the near future. In addition to diversifying Everbridge's client base, the company would also tap into lesser-saturated markets and pave the way for other companies in Thoma Bravo's portfolio to expand internationally. Moreover, considering the social unrest that has become more prevalent in Europe and Asia in recent times, Everbridge could leverage its strong reputation for reliability in handling large-scale emergency situations in the US to capitalise on the rising demand for critical event management solutions.

 

Conclusion


Thoma Bravo's acquisition of Everbridge is an opportunistic and strategic transaction. If successful, the firm would become a trendsetter in the cybersecurity space with an expanded product offering and extensive growth opportunities worldwide. Overcoming the current challenges of poor geographic diversification and market saturation has to happen through internationalisation, client list expansion, and product offering optimisation.


This acquisition is most definitely beneficial for Everbridge, which stands to benefit from Thoma Bravo's extensive experience in the industry as well as from the potential synergies of its portfolio companies. Thoma Bravo, in turn, will be able to expand its product offering and consolidate its position in the cybersecurity sector.


In conclusion, the deal is in line with the rising global demand for cybersecurity solutions, and this alliance is in a favourable position to create value for both the investors in the deal and the industry as a whole. 


Bibliography: 













  • Insurance software solutions (2024) Sapiens. Available at: https://sapiens.com/ (Accessed: 07 April 2024). 


  • Opera web browser: Faster, safer, smarter (no date) Opera. Available at: https://www.opera.com/ (Accessed: 07 April 2024). 


The opinions expressed in the reports are those of the members of the Junior IB team and are not affiliated with any university or institution. The financial recommendations provided are for educational purposes only and the Junior IB team takes no responsibility for any losses that may occur from implementing any ideas presented in the reports. The Junior IB team is not authorized to provide investment advice. The information, opinions, and estimates presented in the reports reflect the Junior IB team's judgment at the time of publication and are subject to change without notice. The price, value, and income of any securities or financial instruments mentioned in the reports may fluctuate. The Junior IB team has no business relationship with any of the companies mentioned in the reports  and does not receive any compensation for their inclusion. 


Copyright © May 2024 | The Junior IB.



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