by Brenon Daly
Two deals, both of them multibillion-dollar take-privates by buyout shops in the past week that, once completed, would return the targets to private equity (PE) portfolios after a brief stint as public companies. But that’s pretty much the end of the similarities between Cision and Sophos. There’s an ocean between the headquarters of the two vendors, and an ocean of difference between the two leveraged buyouts (LBOs).
Start with the headline valuation. Sophos is going private at 5.5x trailing sales, fully two turns higher than Cision’s 3.5x, which is more in line with prevailing LBO multiples. On a cash-flow basis, Sophos is garnering even more of a premium. (See more on Sophos‘ valuation in our report on the pending LBO.)
By our count, Thoma Bravo is paying 48x EBITDA for Sophos, almost three times richer than the 17x Platinum Equity Partners is paying for Cision, according to 451 Research‘s M&A KnowledgeBase. (We write that knowing that our EBITDA figures are far lower than the ‘adjusted’ figures that buyers and their bankers tend to use. For instance, we calculate Cision’s trailing EBITDA at $158m, while the company has guided for 2019 ‘adjusted EBITDA’ of about $270m. For most of the financial community, which tends to look through more costs than we do, Cision is a ’10x deal.’)
Whatever the exact numbers, it’s fair to say that Sophos is fetching an above-market valuation while Cision is more representative of what PE typically pays in LBOs. That’s fitting because, in many ways, Cision is generally thought of as the type of vendor that PE firms like to LBO. Broadly speaking, Cision – unlike Sophos – is a ‘value’ play that appears a bit out of place on growth-focused Wall Street.
In fact, Cision, which is a classic sponsor-backed rollup, only made it to the NYSE through a most unusual route: a so-called ‘blank check listing’ in mid-2017. Since then, the M&A KnowledgeBase shows it has spent $440m on four acquisitions. (For comparison, in that period, Sophos has only purchased three small startups.)
During its time on Wall Street, the rollup did little to distinguish itself. Platinum Equity is taking Cision off the Big Board at roughly the same price it came on. In contrast, Sophos gave public market investors more of what they wanted, roughly tripling its value on the LSE. Two very different companies, with two very different outcomes.