Vista Equity Partners' proposed $8.4 billion deal to acquire automated tax compliance company Avalara has hit a bump in the road. One of Avalara's biggest shareholders revealed that it's voting against the transaction, as it "significantly undervalues" the company.
Founded in 2004, Seattle-based Avalara helps big-name companies such as Zillow, Pinterest and Roku automate many of the processes involved in managing their taxes globally. The company had raised north of $340 million ahead of its arrival on the public markets back in 2018, and like many digital companies during the pandemic, its valuation soared, with its market cap hitting the giddy heights of around $16 billion last September -- before crashing back to Earth with a bump through this year's economic slump. This "correction" saw its market cap fall by as much as 60% to $6 billion in July, though it had bounced back to more than $8 billion before Vista Equity Partners came in with its offer.
One of Avalara's longstanding investors, a family office called Altair US, said that it first invested in Avalara back in 2004, and it had participated in all but one of its subsequent funding rounds prior to Avalara's IPO four years ago. As such, Altair said that it now owns around 1% of Avalara's outstanding shares, making it its biggest single shareholder.
Altair's shareholding isn't enough on its own to vote down the deal, which is why it's looking to garner support from other shareholders.
Throw in the towel
Altair argues that Avalara "threw in the towel" too quickly after experiencing "modest headwinds," and that it was ultimately well positioned to weather the storm and emerge strong.
"Altair is extremely disappointed that the Avalara Board of Directors decided to throw in the towel amid modest headwinds and sell this rapidly growing and successful company at this volatile time in the capital markets and global economy, especially after running a limited and flawed sale process," Altair US's managing director Richard H. Bailey said in a statement. "Most importantly, the negotiated price does not come close to compensating Avalara's owners for the company's huge potential. We are enthusiastic about the company's prospects and, like other Avalara investors, are willing to weather temporary headwinds to gain the benefit of the company's extremely bright future."
While Bailey doesn't argue that Altair is against a sale in principle, he said that Vista Equity Partners' offer of $93.50 per share falls short of the mark, with sell-side analysts prior to the acquisition announcement setting a mean target of more than $117 per share.
"Price targets had been at or above $100 since June 2019, when the company's LTM (last twelve months) revenue was less than half of what it is today," Bailey wrote. "The day before the deal was announced, Goldman's (Goldman Sachs) own analyst covering Avalara had a price target of $123 per share -- a 32% premium over the deal price."
The transaction was ultimately the product of "bad timing and flawed processes," Bailey argued. "The price reflects pessimism and transient market dynamics and not the company's intrinsic value."
Whether Altair can convince Avalara's other shareholders to back them, however, remains to be seen.