By Marvin Stenersen (Stockholm School of Economics)
Photo: Lukas Blazek (Unsplash)
Introduction
2021 was a big year for mergers in the software and tech space, and 2022 seems to continue that trend. Citrix is to be acquired by Vista Equity Partners and Evergreen Coast Capital for $16.5 Billion. They intend to merge it with Vistas portfolio company TIBCO Software and together become one of the world's largest software providers. The deal is expected to be completed by mid-2022.
Overview of Citrix (Target)
Citrix was founded in 1989. They are a technology company that is most well known for its corporate virtualization systems used in some capacity by 98% of fortune 500 companies according to Citrix. Today they sell their virtual apps, desktop licenses, and cloud workspace to firms, but have increasingly shifted towards software as a service (SaaS), and boosting its development is one of the rationales behind the post-deal merger with Tibco by Vista.
Overview of Vista Capital Partners (Acquirer)
Vista Equity Partners: Founded in 2000, they are an American Private Equity firm focused on financing and forwarding software, data, and technology-enabled startup businesses. They have as of June 2021 $81 Billion AUM.
They hold a combination of companies and have historically bought new ones with the intention to merge them into existing ones, such as Blue Prism 2021 into Tibco, and the strategy is the same now with Citrix and Tibco. They buy companies that have synergistic effects with the firms in their portfolio and direct with the one they merge it with.
TIBCO: Founded in 1997 TIBCO is mainly an infrastructure software firm, that is focused on facilitating data transfers B2B, B2C and B2E. They were acquired by Vista in 2014 for $ 4.3 billion.
Evergreen: Also joining the deal is Evergreen, an affiliate of Elliot investment management L.P. They have been on the board of Citrix since 2015 and held 12% of Citrix shares.
Deal Terms
$16.5 billion in cash, at $104 per share. According to Citrix, it corresponds to a 30% premium over the unaffected 5-day VWAP as of December 7 2021. The deal also includes the assumption of about $3.3 billion of debt.
The transaction values Citrix at about 24.8 times its trailing 12-month EBITDA, according to data compiled by Bloomberg. Slightly below the median EBITDA of 25.8 for similar tech companies over the last 5 years.
Synergies
The rationale behind the deal is to combine Citrix with Tobco Software in order to become one of the largest software companies in the world with 400 000 corporate customers. Vista has already built up a portfolio of many software and technology-focused firms, not the least Tibco, and this will allow for cross benefits in experience, customer coverage and cost-cutting for Tibco and Citrix of duplicate activities.
Bob Calderoni, Chair of the Citrix Board of Directors and Interim Chief Executive Officer and President, explained the benefits in that they will be able to operate on a greater scale and provide a larger customer base with a broader range of solutions to accelerate their digital transformations and enable them to deliver the future of hybrid work and better serve the needs of the “modern enterprise. Being private will afford them increased financial and strategic flexibility to invest in high growth opportunities, such as Daas, and give them the funding to accelerate its ongoing cloud transition.
Risks and Uncertainties
It might not succeed. Looking at the Cloudera deal by KKR and CD&R last year which have according to Reuters struggled to grow. Despite the influx of cash from the deal, it is not certain that it combined with TIBCO will be enough to enable Citrix to fast enough position itself in the hybrid workspace, at least in the short term.
Long term the risks are less as the major trends of hybrid work and SaaS are set to continue, but the presence of other large actors such as Microsoft, and the increasing competition in the space means that there are no guarantees for success, but the merger does improve the odds.
Summary
Vista has a long history of successfully combining and growing enterprise software, data and technology-enabled businesses, and this looks like it could be another such story. The synergies that can be gained from the combination, both in terms of costs, and revenues are promising. The management is experienced, and the joining will enable them to make Citrix transition into the cloud and hybrid work world much faster. Together they have the potential to remain a key leader in the software space both today and in the future.
The combined group is betting on the future of hybrid work and employers’ need for suitable software to manage large data systems, and while it seems like it is here to stay, whether it is Citrix-Tibco who will be a leader remains to be seen, but if history is anything to go from, they most certainly have a chance.