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Private Equity Firm to Buy SciQuest and Take it Private

On Tuesday, North Carolina-based SciQuest (Nasdaq: SQI), which offers a suite of cloud-based supply management solutions, announced that it has entered into an agreement to be acquired by affiliates of Accel-KKR, an Atlanta and London-based private equity firm focused on investing in high-tech companies. Under the terms of the deal, Accel-KKR will pay $17.75 per share in cash, totaling roughly $509 million in equity, which is also a 34% premium over the company’s closing price on May 27, 2016. SciQuest ended Q1 with $136 million in cash and short-term investments, making the deal multiple net of cash approximately 3.55 times trailing revenue. SciQuest most recently became a publicly-traded company in 2010 and, as a result of the acquisition, will become privately-held once again.

SciQuest’s Board of Directors unanimously approved the deal and is expected to recommend to all stockholders to vote in favor of their shares at the next stockholder meeting. Accel-KKR has been a stockholder of SciQuest since 2014 and owns 4.9% of the company’s outstanding shares. It will own 100% of SciQuest’s outstanding shares when the deal is expected to close in the third quarter of 2016. Until then, the deal is subject to a number of standard closing conditions, including a 25-day “go shop” period in which SciQuest may solicit other bids from third-party investors that Accel-KKR has the right to match.

According to SciQuest officials, not much will change after the acquisition. SciQuest will continue to conduct business under its name and leadership, including CEO, Stephen Wiehe, and it will continue to operate at its Morrisville, NC, headquarters. The company will continue to serve the procurement and supply management industries with automated spend management solutions and, according to company officials, the premium that Accel-KKR intends to pay in the acquisition will fund further technological innovation.

Deal Background

With the announcement, SciQuest continues its interesting corporate journey, one that began in 1995 as a B2B marketplace for lab supplies. Those were heady days and SciQuest was in the right space (B2B internet) at the right time (late 1990s), and was able to raise $120 million in a 1999 IPO (the company raised $375 million in total). SciQuest’s valuation quickly rose above $2 billion (on roughly $64 million in annual revenues) and it soon had more than 500 employees. But then the bubble burst and by 2001, a new management team (led by current CEO, Stephen Wiehe) had taken over and transitioned the company away from its B2B marketplace model to focus on delivering cloud-based eProcurement, catalog, and supplier enablement solutions. In 2004, the company was acquired and taken private for $25 million.

From 2001 to 2010, the company continued to refashion itself as a cloud-based provider of P2P solutions with significant traction in the higher education sector.  Somewhat surprisingly (based upon its size and growth rates) the company was able to go public a second time in 2010, raising approximately $50 million in another case of being in the right space (cloud solutions) at the right time (2010 – huge market interest in “the cloud”). The company used those new funds to acquire a series of software companies that were used to eventually round out a full supply management solution suite including:

  • In January 2011, it acquired AECsoft, a provider of supplier management and sourcing technology.
  • In July 2012, it acquired Upside Software, Inc., a provider of contract lifecycle management (CLM) solutions.
  • In September 2012, it acquired Spend Radar LLC, a provider of spend analysis.
  • In September 2013, it acquired CombineNet, an advanced sourcing software company.

The acquisition strategy was not entirely consistent or cohesive, but it did result in SciQuest being able to acquire customers (and revenue) and transform the acquired assets into a single suite that ultimately led to the attractive buy-out premium offered by Accel-KKR.

Ardent Analysis

SciQuest has traditionally done well in several sectors including higher education, pharma, and life sciences (to get a snapshot of its customers, here is a link to a page of SciQuest’s customer case studies) but it is still emerging in the broad large enterprise (corporate) market. SciQuest is not the typical turnaround opportunity that attracts investors like Accel-KKR, in fact SciQuest has been growing, albeit slowly. It is likely that the acquiring team sees opportunities to increase sales more profitably and to develop a larger SciQuest network that can help strengthen its overall offering while also improving the company’s overall valuation. There may be synergies between SciQuest and other companies in the Accel-KKR investment portfolio.

From the announcement, it does not sound as though the acquiring team will become heavily involved in SciQuest’s day-to-day operations, but it should be noted that the group acquiring SciQuest includes a few former Ariba executives who understand the space and the market very well. This team likely understands that the core SciQuest solution suite that they are buying is solid but is one that could use some investment (in product development as well as sales & marketing) to help the company better penetrate the large corporate market and cross-sell into the corporate clients that it acquired in recent years.

The deal is expected to close in Q3 and we will track and share any additional news related to the deal before then.

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