PE targets the software industry: Blackstone joins hands with Vista, acquiring Smartsheet for $8.4 billion

Private equity (PE) giant Blackstone's latest deal reveals that the software industry is becoming a target of interest for PE firms.

On Tuesday, September 24th, Smartsheet, an enterprise work management software platform, announced an agreement with Blackstone and another PE firm, Vista Equity Partners, for a cash acquisition valued at approximately $8.4 billion. Pending regulatory and shareholder approval, Blackstone and Vista will acquire all outstanding shares of Smartsheet held by shareholders at a price of $56.50 per share. This acquisition price represents a premium of approximately 41% over the volume-weighted average closing price of Smartsheet stock for the most recent 90 trading days as of July 17th.

According to the agreement, Smartsheet will have a 45-day "go-shop" period to solicit other acquisition offers. Additionally, the Smartsheet board will retain the right to terminate the transaction with Vista and Blackstone in favor of a better proposal, "subject to the terms and conditions of the merger agreement."

Following the announcement of the acquisition by Blackstone and Vista, Smartsheet's stock price surged on Thursday, opening up by around 6%. The intraday increase remained above 6%, reaching over 6.6% at one point in the morning session, with the potential to set a new closing high in over two years.

The $8.4 billion acquisition by Blackstone and Vista has become one of the top privatization deals this year, signaling PE firms' interest in targets within the software industry. According to LSEG data, the largest privatization deal this year was Silver Lake's $13 billion acquisition of sports and entertainment marketing group Endeavor Group.

Some analysts suggest that due to higher interest rates increasing the difficulty of leveraged buyout (LBO) financing, most acquiring companies refrained from making moves last year. This year, they are actively targeting industries such as technology and services. PE firms have been seeking companies with reliable cash flows that can be expanded through acquisitions. In addition to the Smartsheet acquisition, another recent example is the agreement in July by Bain Capital and Reverence Capital Partners to privatize financial technology company Envestnet Inc. for $4.5 billion.

Founded in 2005, Smartsheet offers a range of software tools for enterprise clients to allocate work tasks, track project progress, and share files through a spreadsheet UI. By 2010, Smartsheet had over 1 million users from 20,000 organizations and integrated with Microsoft's Office 365 and Azure cloud, as well as launching an iOS app. Unlike competitors like Asana and Monday.com targeting small companies, Smartsheet focuses on serving large enterprises with complex business needs. The company's website indicates that over 80% of Fortune 500 companies are currently using its work management platform.

Several months ago, there were rumors that private equity (PE) firms were interested in acquiring Smartsheet. In July this year, the media reported that Smartsheet had attracted interest from some PE companies, and recently the acquisition news has been rampant. Last month, it was reported that Blackstone and Vista were in talks to acquire Smartsheet, and this Monday there was news that the two sides were in advanced negotiations, with the deal valued at close to $8 billion.

In the announcement regarding the acquisition agreement, Smartsheet CEO Mark Mader stated that the company is undergoing the next stage of growth, and the deal with Blackstone and Vista demonstrates that the company's employees have performed exceptionally well in serving customers and partners, as well as building a leading enterprise platform. Looking ahead, he believes that the expertise and resources of Blackstone and Vista will help ensure that Smartsheet remains an excellent workplace, enabling employees to thrive, driving innovation, and providing greater value to customers and stakeholders