The private equity (PE) press, ever on the lookout for the next burst of big buyout activity, eagerly picked up on the US$3 billion purchase of Qlik Technologies, Inc. (Qlik) by PE investment firm Thoma Bravo LLC (Thoma Bravo), who beat out Bain Capital, Permira and other suitors with an all-cash deal, partly financed by a $1.08 billion unitranche credit facility arranged by Ares Capital Corporation, Golub Capital, TSSP (TPG Special Situations Partners) and Varagon Capital Partners. In completing the transaction, Thoma Bravo bore out the plans of activist hedge fund Elliott Management Corporation (Elliott) – which revealed an 8.9% stake in Qlik in March this year – and started pushing for a potential sale of the company.
The deal was certainly an exercise in value creation – for Elliott and other existing Qlik shareholders. Between March and May, Qlik shares had already gained 20% following reports that Elliott was pushing for a deal. In fact, signs are that Elliott’s involvement alone was enough to drive up Qlik’s price, without any change in fundamentals. By early June, with the conclusion of the deal, that premium had risen to 40%. Admittedly, that still held the purchase price to $30.20 per share, rather than the peak of close to $42.50 it hit back in August 2015. And sources such as The Street speak well of Qlik’s qualities – solid revenue growth, good financials and moderate debt. In the circumstances, Thoma Bravo might well have decided that Qlik represented good value even at 40% up on its late February floor. Other sources considered the bid, if anything, undervalued. The Street quoted RBC Capital Markets Analyst Matthew Hedberg estimating that $30 per share would come to three times a 2017 sale, while similar companies in the business information space had sold to PE buyers for up to four times forward sales.
Which leaves you to wonder, why had public markets driven Qlik down so far in the first place? Well, it’s the volatility and negative sentiment about businesses dependent on other businesses’ performance in a potential economic slowdown. All of which was enough to push Qlik down to a valuation where it represented a bargain for a PE buyer – even at 40% up on its recent floor. With all its strengths still intact and ready for the buyer. Which tends to suggest that a solid revenue-earning company was better off private, and out of the way of such whipsaws in public valuation. Perhaps PE’s best argument for value creation sometimes is simply its patiently dogged capital, unlike the irrational swings in the public markets.
