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Coupa Software Incorporated (NASDAQ:COUP) is being acquired by tech-focused private equity firm Thomas Bravo. Coupa makes a cloud-based business spend management platform that connects customers with their suppliers. Coupa’s products enable businesses to achieve savings that drive profitability. This is often a focus of private equity. The deal looks good on the antitrust front, with HSR having expired. CFIUS could still block the deal. That seems unlikely, but it is not entirely impossible.
Notably, Thomas Bravo is getting help through a significant minority investment from the Abu Dhabi Investment Authority. Some blowback could still come through CFIUS or an agency like it. Financing is provided by a bunch of private equity partners. That’s not the most robust type of financing, but it is in place, which is the biggest hurdle.
Since the deal was announced, Coupa Software Incorporated stock has been trending upward toward the $81 cash offer per share.
The day before the announcement, COUP traded at around $62. That represents a 21% loss from the current price. However, the NASDAQ has been quite strong since the deal was announced. It is possible the downside isn’t that bad. Especially, unprofitable tech companies (this can be considered one of those with a P/E multiple over 100x) have been very much back in favor lately.
The transaction is supposed to close in the first half of 2023. But I wouldn’t be surprised if this $6 billion deal closes well before we’re halfway through 2023. The end of February or early March seems possible, although it will likely take a bit longer. If CFIUS rears its head, an early close seems out of the question. The latest directions to CFIUS do not seem to imply this is a particularly interesting transaction. It could be that CFIUS is worried about the company’s data, but this seems a bit of a stretch. Especially with the Abu Dhabi stake being a minority investment.
At a glance, the upside here for Coupa Software Incorporated seems very unimpressive, from $79.91 to $81. That’s around 1.4% of upside against ~20% of downside. However, the price has been essentially flat since the 20th of January. Meanwhile, HSR has expired, and this could close as soon as the next 20 days or in the next 1.5 months. It seems unlikely to me (unless we still see CFIUS or similar problems) this will take much longer. On average, it does take deals much longer to close, but deals that don’t have anticompetitive or CFIUS concerns tend to close pretty quickly. If it closes in 36 days the annualized return is 14.51%, if it closes in ~20 days the annualized return is 31% and if it takes 1 1/2 month the annualized return is still around ~12%. Only after 1 1/2 months, it starts dropping off a lot. If it takes quite a bit longer, this turned out mediocre.
I don’t love this deal yet, but I think it is interesting enough to add Coupa Software Incorporated to my portfolio in a small size. I expect Coupa Software Incorporated will probably be one of the small quiet high-probability winners. It won’t make or break my year, but small wins add up over time.
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