On September 9 2024, US-based Progress Software announced its agreement with Cloud Software Group to purchase ShareFile for $875m in a deal set to finalise by the end of November 2024.
Progress Software Corporation, formerly Data Language Corporation, was founded over 40 years ago in 1981 and has since established itself as a global player in enterprise software solutions. Boasting offices in 16 countries, it now generates around $700m in annual revenue (FY2023), roughly $180m in quarterly revenue (Q3 2024), and flaunts a market capitalisation of $2.8bn. Despite Progress' smaller size relative to major enterprise software players such as IBM and Microsoft, it still manages to compete due to its slightly more specialised product range; Progress thrives on producing developer tools, application development, and infrastructure.
ShareFile is a cloud storage and sharing platform that was established in the US during 2005. Its key revenue streams are business subscriptions, intergration, and customisation with notable presence in the healthcare, legal, and financial services industries. The unique selling point of ShareFile's software is its data security and compliance, both increasingly valuable factors that will only grow in significance with a surging data centre market.
Progress' purchase of ShareFile will be financed through both cash and Progress' revolving credit facility. In a press release regarding the merger, Progress announced that it would suspend its quarterly dividend to free-up capital to repay debt from the deal, as well as increase liquidity for any future acquisitions.
Jefferies Group LLC and Barclays plc acted as financial advisors towards seller Cloud Software Group, while Citibank solely advised Progress financially.
Prior to this acquisition, ShareFile sat in Cloud Software Group's (CSG) portfolio. CSG is a joint venture established in 2022 between Citrix Systems, ShareFile's parent firm since 2011, and TIBCO Software, as well as other cloud software firms. This group has succeeded in providing a comprehensive enterprise software interface; CSG supports over 100 million users across the globe as of 2024 and has secured collaborative projects with big-players like Microsoft.
This merger is one of many recent deals surrounding enterprise software, an industry experiencing rapid growth; the entire market is expected to rise in value by over 50% by 2027. ShareFile has many of the typically highly valued traits of software firms. For instance, it has a Software-as-a-service (Saas) subscription model, which are incredibly attractive to investors, promising recurring revenue with high retention rates. In addition, the automation that ShareFile's software brings to document workflow streamlines the process and increases efficiency. The potential AI-powered software has for cost-cutting and productivity gains is the prime driver behind soaring valuations, ShareFile is no exception.
At $875m, ShareFile was valued at approximately 3.6x annual recurring revenue (ARR), a popular valuation ratio for Saas businesses. Software industry ARR valuations tend to range from 3x to 5x, hence ShareFile sits within this range. As well as its Saas and AI-powered offerings, ShareFile's key value driver is its existing client base in highly-regulated industries like healthcare and the financial services. Its market-leading offerings in data security and compliance have solidified the firm as a mainstay in these sectors and should continue to garner clients.
Overall, this addition of ShareFile to Progress' portfolio enhances its Digital Experience (DX) offerings and should reinforce the firm's stellar reputation, with ShareFile prominently poised in key industries. Progress' acquisition of ShareFile is yet another large M&A deal centred around enterprise software, in spite of a "tampered" M&A market, as described by Jamie Dimon, CEO of J.P.Morgan.
Written by: Alexander Philp
Sources: Yahoo Finance, Reuters, Press Releases, Marketscreener
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