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Ellie Mae Is Being Acquired. Should Investors Sell or Hold?

By Motley Fool Staff - Updated Apr 23, 2019 at 4:48PM

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Should investors take the money and run or hold on for a while?

Ellie Mae (ELLI) recently agreed to be acquired for $99 per share, and the stock is now trading for almost exactly $99. This may seem like a good reason to sell your shares and move on, but there's more to the story.

In this Industry Focus: Financials clip, host Jason Moser and Fool.com contributor Matt Frankel, CFP, discuss what Ellie Mae shareholders need to know about the acquisition deal before hitting the sell button.

A full transcript follows the video.

Check out all our earnings call transcripts.

This video was recorded on Feb. 25, 2019.

Jason Moser: We were off last week due to the market being closed. There was some news that cycled through, and it's directly relevant to a company that we've talked about here a few times on Industry Focus. Listeners probably recognize the name Ellie Mae. We wanted to give this a quick look, just to make sure everybody caught this.

Ellie Mae, the mortgage software provider, has entered into an agreement to be acquired by Thoma Bravo, which is a private equity entity that's going to buy Ellie Mae for $99 a share. That's an all-cash offer. I've had Ellie Mae as a One to Watch for a number of weeks. It's a stock I've owned, still own. This is a little bittersweet, Matt, I'm not going to lie. It's always nice to realize gains on our investments. By the same token, I wish we could watch Ellie Mae run a little bit further. But it looks like Ellie Mae may be leaving the public markets and becoming a privately held company here soon. What did you think when you saw that news?

Matt Frankel: I was happy for you! [laughs]

Moser: Well, thanks! Thanks a lot! That's very thoughtless of you.

Frankel: Credit where credit's due, you were suggesting that. You got it on my radar. I wish I had listened to you and bought some shares.

Moser: I said thoughtless, I really meant thoughtful. I was just giving you a hard time.

Frankel: [laughs] One thing I would like people to know about this is, the deal could get even better. Normally, when an acquisition offer like this takes place, I'd suggest that people sell the stock. The offer that was made is for $99 a share. The stock is trading right around $99 a share as we speak. Looking over there, it's almost $99 right now. So, it may seem like a good idea to just go ahead and get rid of the stock and move on to something else. But, like you said, you're holding on to your shares. I bet I can guess why. There's what's called a 35-day go-shop provision in the deal which allows Ellie Mae to try to find an even better offer. It looks like the market's somewhat pricing this in.

If you hold on to your shares right now, worst-case scenario, you're going to get $99 a share, which is exactly what they're worth. Unless you think that there's going to be regulatory obstacles to this deal going through -- which I don't foresee at all -- then you're going to get your $99 back. And, there's always the possibility that somebody could swoop in and try to acquire them for a higher price. Very little downside here with a lot of upside, is my take.

Moser: Yeah. Speaking as a shareholder, I agree with you. I'm going to hang on to the shares that I have. $99 is going to be basically the worst-case scenario. I don't anticipate any type of regulatory issues with this acquisition. Ellie Mae is still a fairly small company in the grand scheme of things. I'd love to see a competing bid come in there. I'm not really sure I'm counting on it. In a few weeks or so, we'll have our answer one way or another. But yeah, like you said, there's no real cost in hanging on to that position and just waiting. I guess everybody could sit there and argue the opportunity costs for being able to put that money to work somewhere else. But, you have to have a better idea in the first place, Matt, and then you have to be right, too. Sometimes that doesn't work out as well, at least timing-wise.

Frankel: I'd say, at least hang on for the 35 days.

Moser: Yeah, I think you're right. That's what I'm going to do. I think that's what most investors would probably be best served doing, as well.

Jason Moser owns shares of Ellie Mae. Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool recommends Ellie Mae. The Motley Fool has a disclosure policy.

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