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Why The Ultimate Software Group Is Skyrocketing Today

By Brian Feroldi – Updated Apr 25, 2019 at 9:53AM

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Traders cheer after the company announces that it is being taken private. Here's what investors need to know.

What happened

After it announced that it has accepted a buyout offer, shares of The Ultimate Software Group (ULTI), a fast-growing software company focused on the needs of human resources departments, had jumped 20% as of 10:29 a.m. EST on Monday.

So what

Ultimate Software announced on Monday that it has agreed to be acquired by the private equity firm Hellman & Friedman.

Here are the must-know details of the transaction:

  • The deal values the company at $11 billion, which translates to a price of $331.50 per share.
  • The deal will be paid for with cash. 
  • The offer represents a 32% premium over the average trading price during the last 30 days.
  • Ultimate's board of directors has unanimously approved this transaction.
  • Ultimate will operate as a privately held company after the deal closes.
  • The deal is expected to close in the middle of 2019.
  • Stockholders need to approve the acquisition before it can be finalized.
  • Ultimate's CEO and founder, Scott Scherr, and the existing senior management team will continue to run the businesses.
  • The deal includes a 50-day shopping period that enables Ultimate's board to see out alternative acquisition proposals. 
Businessmen shaking hands and exchanging money

Image source: Getty Images.

Here's what CEO Scherr had to say about the deal:

"The transaction provides our stockholders with a substantial premium. Our decision was also made with the best interests of our 5,144 employees and our more than 5,600 customers at heart. This change will bring meaningful benefits to our employees and customers—both in the long and short terms. Since all of our employees are given equity in Ultimate when they join us, as stockholders, this transaction will result in immediate financial upside for them. Today's announcement will also allow us to make additional, prudent investments in our products and services to better serve our customers."

David Tunnell, a partner at Hellman & Friedman, stated the following:

"Ultimate's market leadership in the human capital management segment, and the company's impressive track record of growth, are built on the outstanding quality of its software and its dynamic and motivated employees. The company deeply understands the essence of human capital management, having itself been recognized with numerous best workplace awards from leading publications for its exceptional mission-driven culture."

Shares are roaring higher in response to the buyout offer.

Check out the latest Ultimate Software earnings call transcript.

Now what

Today's bullish move caps off a truly amazing long-term run for Ultimate's investors. Anyone who was smart enough to buy and hold shares of this stock from its 1998 IPO until today has earned life-changing returns.

SPY Chart

SPY data by YCharts

The odds look good that this deal will go through as is, but there is potential for a better offer to surface given the 50-day shopping clause.

The smart move for shareholders to make today is probably to enjoy the single-day pop and cross their fingers that an even higher offer comes along in the next couple of weeks.

Brian Feroldi owns shares of Ultimate Software Group. The Motley Fool recommends Ultimate Software Group. The Motley Fool has a disclosure policy.

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