Two weeks before shareholders vote on a proposed $8.4 billion acquisition, Seattle-based Avalara Inc. (NYSE: AVLR) released findings from a third-party report that outlined the tax software company's "expected underperformance" as a key reason to sell.
The findings from proxy advisory firm Institutional Shareholder Services (ISS) stated a significant risk if the acquisition by private equity firm Vista Equity Partners was not approved. It estimated that Avalara's stock could lose roughly one-third of its value without the deal.
"There is also significant uncertainty regarding how much time would be needed for some combination of revenue growth, profitability, and multiple expansion to deliver shareholder value. ... Taking into account the company's anticipated challenges, the expected underperformance appears to support the board's argument that the present moment is an appropriate one to sell," the ISS report, which was released Friday, stated.
Shareholders will vote on whether to approve the deal Oct. 14. The proposed acquisition was first announced in August and is supposed to close in the second half of this year. Multiple shareholder firms have said they oppose the sale and intend to vote against it.
"Given the close relationship between Vista, Avalara's financial advisor and members of the Avalara Board, we are concerned that Vista may have been the preferred buyer all along," Avalara investor firm Altair said in a release. "We believe this price reflects near-term pessimism and transient market dynamics, rather than Avalara's true potential as a market leader with a strong competitive moat and a clear runway to further growth and profitability."
Vista Equity is headquartered in Austin, Texas. The company would pay $93.50 per share to acquire Avalara, a 27% premium above the company's stock price at close July 6, which was the last day of trading before news reports surfaced about the deal.
Friday's report followed Avalara's own presentation from late September when it urged shareholders to approve the deal. In the presentation, Avalara cited various negative predictions for the company if it didn't go through with the acquisition, including high sales and marketing attrition.
Avalara said its board held 11 meetings over more than three months during the acquisition vetting process.
Avalara was founded in 2004 and went public in 2018. The company's software helps with sales and use tax, consumer use tax and international compliance. Its clients include Zillow, Pinterest and Converse. Avalara had 4,465 full-time employees as of the end of 2021, according to a filing with the Securities and Exchange Commission.
