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Avalara

Avalara goes private in $8.4bn deal

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Private equity firm Vista will pay $93.50 per share in cash to bring the tax automation company private. The transaction is expected to close in the second half of 2022, pending shareholder and regulatory approval completion.

10th Aug 2022
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Vista Equity Partners has agreed to acquire global sales tax software specialist Avalara in an all-cash deal worth $8.4bn, according to a statement released by Avalara this week.

The Seattle-based cloud tax compliance platform was founded in 2004 and made a reputation for itself by untangling the complexities of US state and local sales taxes. That foundation allowed it to take its transactional tax compliance services international, through partnerships with enterprise accounting, ecommerce and finance software vendors. Avalara’s applications and integrations now range across all manner of transaction taxes, including sales and use, VAT, GST, excise, communications, lodging and other indirect taxes.

Avalara was listed on the New York Stock Exchange in 2018, raising $207m. The complexities of cross-border trade have increased since then thanks to the UK’s split with Europe and the US Wayfair ruling that increased tax liabilities for ecommerce retailers selling into US states. These landmark events only served to strengthen Avalara’s position as a specialist developer of transaction tax software.

Market correction

Like a number of its publicly traded technology counterparts, however, Avalara suffered a correction in recent years, with its market capitalisation falling almost 60% to $6bn in July 2022. The company’s most recent financial statements from Q2 2022 outlined a total revenue jump of 23% compared to the same period in 2021, though its operating loss rose from $30m to $56m over the same period.

In a statement, Avalara’s co-founder and CEO Scott McFarlane said the company will continue to operate under the Avalara name and brand, with few, if any, immediate changes to be made.

“For nearly two decades, Avalara has ambitiously pursued its vision to automate global compliance, making tax less taxing for businesses and governments around the world. As a leader in this category, we believe our continued investment in innovation and experience is exciting for our customers, partners, and employees. We are pleased to partner with Vista and will benefit from their expertise in enterprise software as we build and improve upon our cloud compliance platform,” said McFarlane.

“Avalara is a mission-critical platform serving customers in a variety of end markets, including retail, manufacturing, hospitality, and software,” added Adrian Alonso, managing director at Vista.

Founded by billionaire investor Robert F Smith, Vista focuses on enterprise software, data and tech businesses, and has stakes in a number of high-profile companies including Canadian ERP tool Vena, the UK’s third-largest accounting software company Advanced, and Swedish buy now, pay later firm Klarna. In January 2022, it also wrapped up a $13bn deal with Elliott Investment Management to buy cloud computing giant Citrix Systems Inc.  As of 31 March 2022, the firm had $96bn in assets under management.

The deal marks another move into the accounting market from private equity, following in the footsteps of financiers such as Hg Capital, which over the past five years has broadened its portfolio from accountancy software vendors such as IRIS, Dext and Access Group to include Azets, a conglomerate of more than 60 UK accountancy firms (now reported to be on the auction bloc).

More generally, the market has seen a rapid rise in the volume of private equity deals as company valuations fall across the board - driven partially by high inflation and tightening monetary policy.

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By Hugo Fair
11th Aug 2022 00:22

A fool and his money ...

* financial statements from Q2 '22 show total revenue jump of 23% from the same period in 2021;
* but also that its operating loss rose from $30m to $56m over the same period.
* market capitalisation fell almost 60% to $6bn in July '22.

... and yet Vista Equity Partners has agreed to acquire them in an all-cash deal worth $8.4bn!

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Replying to Hugo Fair:
Tom Herbert
By Tom Herbert
11th Aug 2022 10:09

I guess they must see some kind of upside??

Perhaps the gradual unravelling of globalisation (and the additional complexity this) brings could be to companies like Avalara's benefit?

Or speaking with tongue firmly in cheek, perhaps when distributed ledgers/blockchain sweeps away all the other functions in accounting software we'll have nothing but sales tax tools :-D

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