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January for tech stocks was bleaker than an Edgar Allen Poe short story — and cloud software companies, in particular, have felt the gloom with 33% losses in the last three months, according to the BVP Nasdaq Emerging Cloud Index.
So what happens when a company in this fast depreciating sector gets sold? One of the biggest tech buyouts in history is what happens. On Monday, cloud software company Citrix reached a deal to be acquired by Elliott Management and Vista Equity for $16.5 billion, proving tech is still a draw in private equity circles.
Looking for the Remote Control
The Citrix acquisition is, plain and simple, a Vegas-sized bet on remote work. The company's software lets employees access their jobs securely from any remote device, a service that has naturally benefited from the pandemic. Citrix banked $307 million in profits last year, though that was down from $504 million in 2020.
Which leads to the hurdles. Citrix is in a highly competitive digital employment tools market, where tech giants like Salesforce and Microsoft dwell, and it hasn't exactly covered itself in glory of late. The company's CEO, David Henshall, resigned in October after two straight quarters of missed sales targets. Elliott, which owns 12% of Citrix stock, has been loudly campaigning for changes at Citrix since it first bought a stake in 2015, meaning it's likely to ratchet up pressure on the company. What's clear is the buyers still see considerable value:
- The deal marks the first buyout of 2022 to top $10 billion, after last year saw a record $1.1 trillion in private equity takeover deals signed, according to PitchBook.
- Elliott's partner Vista, with $86 billion in assets under management, counts itself as one of private equity's software buyout leaders and seems undeterred by markets — it's already announced nine deals this year.
What's The Plan? Once the deal is finalized, the plan is to merge Citrix with Tibco Software, a business management company that Vista owns. The merged Citrix will focus on selling subscription-based plans for its virtual-desktop services, because turning customers into subscribers instead of selling licenses generates more recurring revenue, and recurring revenue is music to a private equity firm's well-trained ears.