You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from new insights for PE-backed executives and portco news to recent buyouts and investment trends. 

Insights

Chart of the Week: In our 2024 Consumer Sector Private Equity Report, we examine why PE firms have pulled back on consumer businesses over the past two years. Some buyout firms have even decided to exit the sector entirely, while others are simply holding existing investments for longer as they wait out the current inflationary, high-interest environment which has burdened consumer spending. (Read More)

More Insights

• Consumer Sector Private Equity Report (Read)
• Private Equity Case Study: BJ’s Wholesale (Read)
• Energy Sector Private Equity Report (Read)
• CEO Turnover is Highest in PE-backed Tech Buyouts (Read)
• Japan’s Share of Global Buyouts Reaches All-Time High (Read)

Spotlight

What’s the deal? Squarespace plans to go private in an all-cash deal valued at just under $7 billion. Permira is leading the buyout, with long-term investors General Atlantic and Accel intending to reinvest. This will be the second-largest LBO of 2024. Squarespace stockholders will receive $44 per share which represents a +29% premium over the company’s average stock price over the past 90 days. Squarespace CEO Anthony Casalena is expected to stay with the company post-transaction. The deal was approved unanimously by Squarespace’s board of directors and, pending regulatory and shareholder approval, is expected to close by Q4 2024.

Here is a brief company timeline:

• 2016: Squarespace achieves profitability for the first time while continuing to grow topline in typical high-growth startup fashion. 
• 2020: The company surpasses $620 million in revenues and 3.7 million subscribers. However, net income begins to reverse and actually declines -47% YoY to just $31 million, driven by excessive operational spending.
• 2021: Squarespace raises $300 million at a $10 billion valuation and then files to go public via a direct listing. The company registered 40 million shares and closed trading on its first day near $50 a share.
• 2022: Squarespace reports continued topline improvement as revenues increased +10% to $867 million. Its net loss of -$252 million widened but was driven by a massive -$225 million non-cash goodwill impairment charge.
• 2023: The company surpasses $1 billion in revenues, reflecting a +17% increase YoY. Its net loss shrinks to -$7 million for the year, but its stock price lags competitors and trades at one-third the price of its initial public listing.

Squarespace’s consistent YoY topline growth reflects its success with core offerings, which include website and domain services, eCommerce enablement, and customer management tools. The company has an estimated 44% share of the website-builder market, but increased competition from Google, GoDaddy, Wix, Salesforce, Adobe, and Shopify has increased customer acquisition costs and squeezed margins.

To help with customer acquisition, Squarespace bought Google’s domain registration business in 2023. The move will help Squarespace convert new domain owners into customers of its other web and eCommerce services.

Why Permira? The UK-based PE firm specializes in investments across various sectors but is particularly well-known for its technology holdings which include McAfee, Klarna, and Zendesk – which it acquired for $10 billion in 2022. Permira’s value creation plan for Zendesk, which includes using AI across its product offerings, is an indicator of how the firm will likely approach working with Squarespace. 

In addition to Permira’s guidance on using technology to improve operations, the PE firm will also likely place a heavy emphasis on helping Squarespace return to profitability. Operating as a private company will allow Squarespace to test new business models while cutting costs in existing service lines without the pressure of public market investors. That said, Squarespace is not a traditional PE-backed turnaround in need of drastic reform. 

The acquisition reflects a growing trend in the tech industry, where successful companies opt for private ownership in order to achieve the company’s strategic goals. Other PE firms, such as Thoma Bravo and Vista Equity, have also recently scooped up companies in a series of billion-dollar take-private deals. The move could inspire other firms to consider similar paths, reshaping the tech industry landscape. It also highlights the strong and significant role private equity firms play in helping push innovation in the tech sector.

Buyout News 

Warburg Pincus and Bain Capital are each vying to take PowerSchool private. The education software company has a public market valuation of $3.3 billion but a buyout deal could reach $6 billion. PowerSchool IPO’ed in 2021, but its stock price has not kept up with peers in the tech industry, increasing just +10% over the past two and a half years. (Source)

EQT is trying to acquire Keywords Studios, which develops services and software for video game developers, for $2.8 billion. The company's stock was trading at an all-time low before doubling after news of a potential buyout became public. (Source)

TA Associates is looking to exit AffiniPay, an online payments company for accounts and lawyers, for $2 billion. The company was acquired for $600 million in 2020 and has 4x’ed EBITDA since then to $100 million. (Source)

Thoma Bravo is selling cybersecurity firm Venafi to a strategic acquirer for $1.5 billion. The company helps prevent identity theft of image recognition technology (such as those used by airport security lines). Thoma Bravo acquired Venafi for $1.2 billion in 2020. (Source)

Audax Private Equity has decided to exit five portfolio companies: electronics distributor EIS, tools distributor Colony Hardware, local transport provider Beacon Mobility, waste management company Liquid Environment Solutions, and safety products manufacturer Justrite Manufacturing. (Source)

Questions? Email us: editor@valueaddpe.com