Vista Equity Partners is betting big on Cvent Inc. — and the California private equity firm looks to be in it for the long term as it takes the event management software company private.
One thing is for sure: Vista is paying a high price for the Tysons company, according to Michael Faulkender, an associate finance professor at the University of Maryland. The nearly 70 percent premium is about twice as much as the 30 to 40 percent premium on share price he would expect in a deal like this.
That means the private equity group sees a financial upside much higher than the $36 per share it offered. It also means that existing shareholders were not eager to sell, which is why the offer is so much higher than the $21 per share the company had been trading at for the last several weeks.
Vista and Cvent can only realize that gain by taking the company private, freeing the company from the short-term interests and share prices that can prevent long-term investment.
“The private equity investors are not idiots,” Faulkender said. “The only way this is rational for them is that they think by taking it private and getting it focused they can get some big long-term gains.”
The purchase was the end result of an unsolicited offer for Cvent that triggered a bidding war, CEO Reggie Aggarwal told me. He said the company reviewed the multiple offers and picked the best one for shareholders that would allow the company to continue investing in the future. The ultimate purchase price of $1.65 billion is more than eight times revenue, putting it near the top for technology companies.
“They paid such a high premium it was difficult to say no,” Aggarwal said.
While he declined to say what the strategy would be when the company goes private — since the deal must still be approved by the shareholders — he said Cvent has made it clear it wants to grow organically and through acquisitions whenever possible and that Vista Equity Partners has “deep pockets” for additional purchases.
“We are going to be growing and acquiring companies and there is no reason to think that will change,” Aggarwal said.
When newly private, Cvent will be able to ditch the quarterly earnings reports that make it more difficult to balance the short-term gains many stock traders want with the long-term gains that private investors desires.
Jonathan Aberman, the managing director of Amplifier Ventures, a seed and early-stage venture capital fund based in McLean, said strategic pivots can be difficult — if not impossible — when a company has to appease shareholders.
“When you are a public company you pretty much have to manage yourself quarter to quarter,” Aberman said. “There aren’t a lot of long-term investors in the markets anymore.”
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