The board of tech and fundraising firm Blackbaud has rejected an all-cash takeover offer of $71 a share from Clearlake Capital Group, its largest shareholder. The bid estimates the enterprise value at more than $4 billion.
According to data from Clearlake, the offer represents a 57.7% premium to Blackbaud’s unaffected trading price of $45.01 per share on October. 3, 2022 and a 25.9% premium to the 30-day Volume-Weighted Average Price (VWAP) of Blackbaud’s common stock of $56.31 as of March 24.
Blackbaud’s board released a statement that it “determined that the proposal is highly opportunistic and significantly undervalues Blackbaud. As such, the board determined that the Clearlake proposal is not an appropriate basis for engagement and is not in the best interest of stockholders.”
While the firms released dueling statements, neither side would provide a spokesperson.
According to the statement from Clearlake, the investor “over the past few months” attempted unsuccessfully to engage with Blackbaud’s management regarding Clearlake’s interest in making a proposal to acquire Blackbaud. “In each of these instances, we were informed that the company did not believe it was an appropriate time to engage in a strategic discussion,” according to the statement. “We were left with no other alternative than to submit our proposal of March 24th. We were frankly surprised to have our proposal summarily rejected the next business morning.”
The firm claims to be Blackbaud’s “largest stockholder, holding approximately two times the number of shares held by the next largest stockholder and approximately nine times the number of shares held by the company’s directors and officers.” Investing data shows Clearlake has 9.75 million shares. BlackRock is the next largest with 5.62 million shares as of this past January. 26.
Various investment indexes show 78.51% of Blackbaud shares are held by institutional investors. That’s a greater percentage than is typically held for stocks in the packaged software industry, according to CNN Business.
Blackbaud’s leadership contended via a statement that the bid is an attempt to put the firm in play for other investors, thus driving up the share price.
“Our board is committed to driving value for all stockholders and regularly reviews our strategy and evaluates opportunities to achieve that goal,” Blackbaud Chair of the Board Andrew M. Leitch said via a statement. “Clearlake’s unambiguous statement that the firm itself does not need to be an acquirer is an overt attempt to put the company in play opportunistically. Most importantly, the proposal disregards the tangible momentum in Blackbaud’s business that we are confident will drive enhanced value for stockholders.”
Clearlake claims in its statement that Blackbaud “has recently rejected other credible third-party acquisition overtures.” The firm via the statement rejected the idea that it was attempting to put the firm in play. “This is not a ‘Stalking Horse bid’ and we are eager to engage in direct negotiations with the company to reach an agreement over the short-term or, alternatively, to participate in a competitive process undertaken by the board and its advisors,” according to the statement. The other possible suitors were not disclosed.
Blackbaud has a market cap of $3.64 billion with 53.2 million outstanding shares. It is traded on the NASDAQ exchange under the symbol BLKB. As of noon today, the stock price was $68.44, near its 52-week high of $69.76. The stock closed at $59.15 on March 27, the day the offer letter went to the Blackbaud board.
Blackbaud, based in Charleston, South Carolina, reported revenue of $1.05 billion and a net margin of (negative) 4.29% for last year. It’s debt to equity percentage is 115.46%
Blackbaud last month agreed to pay a $3 million fine to the Securities and Exchange Commission (SEC) for concealing the extent of a 2020 ransomware attack in which criminals obtained donors’ unencrypted bank account, credit card, and social security numbers. In a disclosure to investors last month, company officials reported the total costs related to the security breach exceeded its insurance coverage during the first quarter of 2022 and that it anticipates making net cash outlays between $25 million and $35 million in 2023 for ongoing legal fees related to the breach.
Clearlake Capital Group, L.P. is an investment firm founded in 2006. It operates integrated businesses across private equity, credit, and other related strategies. The firm’s core target sectors are technology, industrials, and consumer. Clearlake currently has more than $70 billion of assets under management, and its senior investment principals have led or co-led over 400 investments, according to the firm.
Clearlake is headquartered in Santa Monica, California, with affiliate offices in Dallas, London, and Dublin, Ireland.
Dan Romanoff is a senior equity research analyst with Morningstar Research Services who watches Blackbaud. “The recent news does not alter our view that the company will continue to benefit from long-standing customers necessitating a technology-first approach,” he told The NonProfit Times. “While the current macro environment is challenging for the social good space, we have been pleased with the firm’s recent efforts to boost profitability through pricing actions, improved productivity, and headcount reductions.”
