Tax Software Company Avalara To Go Private In $8.4B Deal By PE Firm Vista

Avalara logo

It seems private equity firms with big bucks are keen on acquiring tech companies and taking advantage of the recent drop in broader valuations to score discounted prices. This time, the target is Avalara (NYSE: AVLR), a company that makes software for automated tax compliance, and the acquirer is Vista Equity Partners, a tech-focused private equity firm with nearly $100bn of assets under management.

  • Vista has agreed to pay $93.50 in cash for each outstanding share of Avalara, a 27% premium to the company’s share price before whispers of an impending merger began circulating. The total cash payment comes at $8.4bn, marking Vista’s biggest deal this year.

 

  • Vista has enormous cash reserves to fund an Avalara acquisition but is nonetheless financing a part of this deal with debt, as many private equity firms do. According to Bloomberg, a group of lenders led by Blue Owl Capital will provide a $2.5bn loan for this deal. Blue Owl is no stranger to doing deals with Vista given it’s a minority shareholder in the private equity firm.

Avalara is one of those tech companies whose names you may not recognize but has a business on solid footing. The company develops software that enterprises use to automate tax compliance in different regions across the globe, saving them considerable headaches.

In 2021, Avalara reported $699mn in revenue and a net loss of $136mn. It didn’t record an annual profit in the last three years, although sales almost doubled within that period. The company makes most of its money from recurring subscriptions, the kind of stable revenue stream private equity firms like Vista often target in a company.

  • Avalara was founded in 2004 by Scott McFarlane, who has remained its CEO up to this point. He took the company public in 2018 and after that deployed its bigger cash reserves and liquid stock to acquire over a dozen companies to spur business growth.

 

  • Avalara is selling for nearly quadruple its IPO valuation after just three years on the public markets, a successful run by most standards.

 

  • According to the most recent proxy statement, McFarlane holds about 693,000 shares, directly and indirectly, implying he’ll receive about $65mn from this acquisition. Adding that figure to his previous stock sales of multiple millions, he’s definitely made a lot of money by founding Avalara.

If all goes as planned, this acquisition will close in this year’s second half.

 

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