Business expense management The investors of software company Coupa are sounding the alarm about a possible sale to private equity, fearing that such a transaction will unreasonably constrain its value in the current investment climate.
This is something you don’t see every day. Rumors surfaced last week that Vista Equity Partners was interested in buying Coupa. Today, Coupa’s largest shareholder, HMI Capital, with 4.8% of the shares, sent a public letter to Coupa’s board stating that it would oppose any deal that it believes undervalues the company.
It pegged its value at a minimum of $95 per share. Coupa’s share price hovered around $63 this afternoon, down nearly 3%. Like many other SaaS stocks, Coupa’s value has plummeted in 2022, down 60% for the year.
HMI is concerned that Coupa’s current value doesn’t reflect what the company believes will be a lucrative future once it moves past the current troubled software company valuation market.
Unlike the poison pen letters we’re used to seeing from activist investors, this one was full of nothing but praise for the company (probably because the goals were very different):
As we have communicated to the board and management team, we invested in Coupa because we believed it to be an excellent company. The management team – especially Chief Executive Officer Rob Bernshteyn – has done an exceptional job of building the company from a start-up to a clear industry leader, while corporate expense management has become a critical category of its own. Perhaps most importantly, Coupa’s outlook for future growth and long-term value creation is rosy. As Mr. Bernshteyn himself said just a few months ago:
“Excluding the near-term scenario, we are proud to be the clear leader in corporate spend management. Our overall addressable market is vast and under-penetrated and we are as excited as ever in our pursuit to revolutionize this market and deliver customer success like never before.”
We believe we speak for many other shareholders when we say that we are happy to own Coupa for the foreseeable future and are betting that the team will continue to build momentum and execute on its proven strategy.
It’s almost strange to see an outside investor praise a company’s leadership, as most comments from public investors are negative. Here we don’t see an investor begging management to cut costs or change course. Instead, it is praise and a belief in a greater worth yet to come.
Coupa’s sunny view of the future clashes with current public market sentiment about the future value of technology companies. That prevailing stance, crossed with huge amounts of private equity dry powder, may have put PE investors in a mood to close deals.
HMI begs the Coupa crew to hold on, or at least demand more than they would otherwise settle for. Of course, this is HMI speaking his own book, but there may be some substance to his argument. Let’s take a look at the math – and a comp.