By Luis Garcia and Dean Seal

Smartsheet has agreed to be taken private by Blackstone and Vista Equity Partners in an all-cash transaction valued at about $8.4 billion, as buyout firms warm up to software makers again after a general slowdown in deal activity.

Under the terms of the deal, Blackstone and Vista would acquire the work-management software company based in Bellevue, Wash., for $56.50 a share, an 8.5% premium to Monday's closing price of $52.09.

Smartsheet shares rose roughly 6.5% to close at $55.46 Tuesday following news of the deal.

The acquisition agreement includes a 45-day "go-shop" provision that allows Smartsheet to solicit competing bids. The period ends on Nov. 8.

A larger offer is unlikely to emerge even as Smartsheet could be an attractive addition to a number of technology companies, according to Rishi Jaluria, a managing director and equity analyst at investment bank RBC Capital Markets who focuses on the software sector. He cited Google, Salesforce, Zoom Video Communications and Cisco Systems as potential alternative buyers.

"I'm a little surprised that it is private equity. I was kind of expecting a strategic [buyer] to be a little bit more interested," Jaluria said. "I felt like Smartsheet might be something that belongs as part of a larger platform."

Still, the private-equity buyers might decide to expand Smartsheet by acquiring other work-management-software companies, Jaluria said. He also pointed to a potential combination with other companies held by technology-focused Vista, such as Lucid Software, a provider of visual-collaboration applications, and Quickbase, whose programs also help businesses manage projects.

"This is a space that is fragmented," he said of collaboration software. "If you're a believer in the collaborative work-management space, there are greenfield opportunities."

The buyout is expected to close in the fourth quarter of Smartsheet's fiscal 2025, which ends on Jan. 31. The company's directors have unanimously approved the deal and recommended it to shareholders.

An expected decline in interest rates helped revive buyout activity this year even before the Federal Reserve cut its benchmark rate by a half-percentage point last week, lifting hopes that the industry would return to a more normal deal volume following a roughly two-year slump, according to fund managers. Private equity-backed mergers and acquisitions in the U.S. rose 39% this year through Sept. 12 compared with the same period last year, according to London Stock Exchange Group data.

With a drop in rates, private-equity firms might see opportunities to buy assets at attractive prices compared with the hefty valuations for deals done before the Fed started raising rates in 2022. Despite the premium embedded in the Smartsheet deal, the stock price remains far below the $84.41 all-time closing high reached in February 2021.

Smartsheet went public in 2018, when its backers included growth investors Insight Partners in New York and Madrona Venture Group in Seattle.

The total value of buyouts in the software sector dropped to $34.8 billion across seven deals in the U.S. last year, less than half the $79.7 billion for 11 transactions recorded in 2022, according to an RBC report. The sector has seen four buyouts so far this year with a total value of $13.5 billion, RBC said.

"I think companies and acquirers and even sellers have realized that we're going to be in this tough macro environment for a while and that's not going to change," Jaluria said, citing layoffs in technology companies. Still, he expects deal activity in the sector to accelerate.

Smartsheet's products help businesses manage workers by facilitating actions such as assigning tasks, automating processes, organizing data and sharing documents, according to the company's website. The software supplier has benefited from focusing on businesses in general rather than the more specialized approach favored by other makers of project-management systems, Jaluria said.

Increased efforts by companies to make work more collaborative, a trend that gained speed after the pandemic, is also driving demand for Smartsheet's products, he added.

Smartsheet reported fiscal second-quarter subscription revenue rose 19% to $263.5 million compared with the year-earlier period. Net income reached $7.9 million for the quarter, which ended July 31, after a $33.4 million loss in the year-earlier period.

Reuters reported last week that Vista and Blackstone were nearing a deal for Smartsheet.

Write to Luis Garcia at luis.garcia@wsj.com and Dean Seal at dean.seal@wsj.com

(END) Dow Jones Newswires

September 24, 2024 19:02 ET (23:02 GMT)

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