At the beginning of the year, GoCanvas was presented with an offer it couldn’t refuse.
Nemetschek Group, a German developer of construction software and a strategic partner of GoCanvas, made a preemptive offer to acquire the Virginia-based company, PE-backed since 2019.
The all-cash deal went through a relatively smooth due diligence process that focused on evaluating potential growth synergies and closed within six months of Nemetschek division officer Usman Shuja initiating the talks.
GoCanvas, which develops software for field-worker collaboration, is just one example of the many mature assets held by PE firms attracting the interest of cash-rich strategic buyers, which are ready to pounce on assets that could expand their offerings, all while GPs face pressure to realize a mounting backlog of unsold investments.
Path to exit
“We kind of went down the path of a partnership, and that, at one point, turned into an acquisition discussion and led to the outcome that you heard about,” said Sujit Banerjee, a managing director at the PE backer, K1 Investment Management.
GoCanvas had regularly engaged in strategic partnerships, and its arrangement with Nemetschek meant the buyer was already familiar with its products.
It appears to have been a fruitful exit for the Los Angeles-based SaaS-focused buyout shop, as Nemetschek agreed to pay around 11.5x the $67 million annual recurring revenue that GoCanvas generated in 2023—more than $770 million.
“In my mind, I think it is a grand-slam transaction for both parties,” said GoCanvas CEO Viyas Sundaram.
This was likely welcome news for K1: The lower- and middle-market-focused firm has been winding down investments in its fourth vehicle, a 2018-vintage fund, and paving the way for raising its sixth flagship fund, which may target at least $6.25 billion, Buyouts reported. The firm moved several assets from the older fund into a continuation vehicle that includes behavioral health technology company Rethink, according to the report.
K1 declined to comment on fundraising, but Banerjee said it receives regular interest for its portfolio companies and that it is not unusual for strategic partnerships to develop into deals.
Strategic strength
Strategic buyers remain the largest group of buyers for PE assets so far this year, thanks to their relatively strong purchasing power in a high-interest rate environment. In H1 2024, strategic buyers spent $80.6 billion on acquiring PE-owned assets, amounting to 57% of overall PE exit value during that period, according to PitchBook’s Q2 2024 US PE Breakdown.
Many buyers have been keeping tabs on certain targets for years, and they know the particulars of those businesses and when to come in with an offer.
Acquirers are aware of the fact that some PE firms are coming to terms with a pileup of assets nearing maturity. So, they act promptly, hoping to be the first ones to grab ideal targets, using strategies such as “preemptive bids” to grab these companies and circumvent competitive bidding auctions, said Matthew T. Simpson, co-chair of the PE practice at law firm Mintz.
“I think there is a calculus where strategics think now is a pretty good time to look at assets because it is still hard for PE firms to be a buyer—and there is an increasing pressure for them to be the sellers,” he said.
Simpson added that premium assets typically attract preemptive offers, where a buyer approaches before the asset is formally for sale.
When to jump the gun
“Preemptive comes around for the top-quality assets, for something that is a really good business to have on a buyer’s platform, or something for strategics that is a meaningful addition to their existing business. Either expanding their existing offerings or increasing their depth or breadth, there is a compelling reason for you to own this business.”
That said, not every direct negotiation ends happily. Some can be fraught with tension and eventually fall through, either because the buyer overestimated its ability to leverage the seller into unfavorable terms, or because the transaction, despite being offered at a compelling price, was riddled with other problems, such as antitrust risks.
Moreover, some PE managers would prefer to launch an auction over accepting a direct offer because they may expect to receive a higher valuation.
“Obviously, as a seller, I’m going to want to run a process and find one that wants to pay more than everybody else,” said Michael Zhong, a partner at 3 Rivers Capital, a Pittsburgh-based firm focused on the lower middle market.
At the end of the day, a seller could be content with either route—an auction or a direct offer—as long as it results in the desired valuation and outcome.
It matters not which strategy was employed.
Featured image by Shannon Fagan/Getty Images
