SoftwareOne/Bain: board hostility remains bane of bidder’s life

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Bain Capital has learnt the hard way how to get a deal across the line in the scramble to buy up midsized European software groups.

Rival US buyout group Silver Lake beat Bain in a €2.6bn battle to buy Germany’s Software AG earlier this year. Bain made the highest offer. But Silver Lake secured the support of Software AG’s board and its largest shareholder.

Bain is now pursuing Switzerland’s SoftwareOne. It has won the backing of board member Daniel von Stockar and fellow founders. They hold 29 per cent of the shares. 

Other directors of SoftwareOne rejected Bain’s second indicative offer worth SFr3.2bn ($3.7bn) on Monday. The whole board plans to review what will make most money for investors.

Bain’s Swiss expedition already looks like harder going than Silver Lake’s German incursion.

SoftwareOne connects users and enterprise software publishers such as Microsoft and SAP. It helps customers choose and negotiate licences. As at Software AG, the shift to cloud is proving troublesome. Growth has slowed. 

In response, the board replaced von Stockar with Adam Warby earlier this year. Brian Duffy, an adviser to US buyout group Warburg Pincus, became chief executive in May. Duffy leads a push to reinvigorate growth by focusing on services, while cutting costs. 

Bain’s offer of up to SFr20.5 per share looks opportunistic in this context. It is well below the 2021 peak of SFr30 per share and not much more than the 2019 IPO price of SFr18 per share. 

Bain has bid at an enterprise value to ebitda multiple of 10.5 times 2024 ebitda, according to Visible Alpha consensus. That is not much more than the nine times average multiple since shares listed.

Software reseller deals typically go out at a 10 times multiple, notes UBS. But SoftwareOne merits a premium.

Microsoft plans to launch an AI-propelled office assistant 365 Copilot. An industry upgrade cycle is on the horizon. Sales of the tech giant’s wares account for half of SoftwareOne’s billings. The board is right to seek a higher price.