Progress Software (PRGS, Financial) is experiencing a decline after announcing a significant acquisition. The enterprise software provider revealed plans to acquire ShareFile, a business unit of Cloud Software Group, for $875 million. This is a substantial amount for a company with a $2.5 billion market cap. The acquisition will be financed through cash and an existing revolving credit facility. The deal is expected to close within Progress' fiscal year, ending November 30.
In addition to the acquisition news, Progress also provided positive guidance, expecting Q3 (August) adjusted EPS and revenue to be within or above the high end of prior guidance.
- Progress plans to suspend its dividend upon closing the ShareFile acquisition. The company intends to use the funds to pay down debt, increase liquidity for future M&A, and repurchase shares. Progress aims to de-lever quickly, as it has done with previous acquisitions.
- ShareFile offers a collaboration and workflow platform, enabling document-centric collaboration with automated workflows, client portals, secure file sharing, and integrated eSignature. It uses Gen AI for guided self-service user experiences, automatic document summarization, and Q&A generation.
- ShareFile's primary competitors are Box (BOX, Financial) and Dropbox (DBX, Financial). However, Progress believes ShareFile's richer workflow, collaboration capabilities, client portal, and Gen AI features give it a competitive edge, especially for compliance-focused companies.
- The acquisition will significantly expand Progress' digital experience portfolio. ShareFile serves various industries, including legal, accounting, financial services, healthcare, construction, and real estate. It boasts a large and loyal customer base. Upon closing, ShareFile is expected to add over $240 million in annual revenue, bringing Progress' ARR to over $800 million and annual revenue to nearly $1 billion.
- Progress sees an opportunity to leverage its existing sales support and operating platform to achieve its 40% operating margin target. The company believes the deal is attractive due to its acquisition multiple (3.6x sales) and the cash tax advantage of an asset purchase transaction.
Investors are not overly enthusiastic about the deal. Concerns may stem from the file-sharing nature of the acquisition, integration risks due to the deal's size relative to Progress' market cap, and the suspension of the dividend. Progress is set to report earnings on September 24, which should provide more insights.
