Vista Takes Duck Creek In An All-Cash Purchase

Key takeaways

• Vista Equity Partners is a private investment firm focused on technology.
• Duck Creek is an insurance software company that went public in 2020 but has seen its shares fall significantly since then.
• The companies announced a deal where Vista Equity Partners would take Duck Creek private, paying a nearly 50% premium for the company’s shares.

Large companies going private has recently been a topic in the news, mainly due to Elon Musk’s purchase of Twitter. Another recent instance of a business going private is Duck Creek, a Boston-based insurance software company.

Investment firm Vista Equity Partners announced that it would acquire the company for cash and take it private. These kinds of takeovers represent opportunities for investors and indicate where major players think the market is going.

Here’s what you need to know, and how Q.ai can help.

Background

Duck Creek Technologies was founded in 2000. It focuses on providing software and technology tools to the insurance sector.

The company went public in 2020, trading at $40 per share for a market capitalization of about $5 billion. Over the next year, its share price grew until it was valued at $7 billion. However, it experienced a downturn, and its stock dropped to $13 per share for a valuation of less than $2 billion as of January 6, 2022.

Vista Equity Partners is an investment firm that was also founded in 2000. It has offices in Austin, Texas, New York City and San Francisco and focuses on technology industry investments. The company has more than $95 billion in assets under management.

What’s happening?

On January 9, 2023, the two businesses announced a deal in which Vista Equity Partners would acquire Duck Creek for $19 per share, valuing the firm at $2.6 billion. The offer represented a more than 46% premium over the share’s closing price on the previous Friday.

Vista plans to take Duck Creek private after it acquires the business, following the pattern it has used with previous investments into technology companies.

In the announcement, the CEO of Duck Creek, Michael Jackowski, stated, “This transaction is a testament to the value of the Duck Creek platform, the success of our strategy, and the strength of our incredible team. Following a deliberate and thoughtful process, the Board approved this transaction which delivers a great outcome for Duck Creek’s shareholders.”

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He continued, “Duck Creek is proud to have pioneered cloud-based mission-critical systems for the P&C insurance industry to deliver a best-in-class customer experience. We are excited to enter the next chapter for Duck Creek in partnership with Vista Equity Partners to continue supporting P&C insurance carriers’ move to the cloud.”

Though the board has approved the transaction, it must go through a few more phases, including approval by shareholders and antitrust clearance. If the transaction is fully approved, the companies expect it to go through in the year’s second quarter.

The deal also gives Duck Creek until February 7, 2023, to shop around and solicit acquisition offers from other investment firms.

What happens when a company goes private?

As part of the acquisition of Duck Creek, Vista intends to take the company private. This means that its shares will no longer trade on the open market for investors to buy and sell.

Privatization is a popular strategy for large investors for a few reasons.

For example, it gives the new owners more control over the business. Managers can focus on running and growing the company without appeasing shareholders. There may also be less stringent reporting and filing requirements with groups like the SEC, reducing overhead.

Private companies also have greater privacy than public ones. Businesses that are developing new technology or cutting-edge products may prefer this to being public and having to disclose some details of what they’re working on.

Typically, when an investor wishes to take a business private, they offer to purchase shares in the company at a premium. That’s why, for example, Elon Musk bought Twitter shares at $54.20 per share when it had been trading at less than $50. It’s also why Vista is paying $19 a share for Duck Creek when the company had been sitting at $13 just the week prior.

If the board and shareholders agree to the deal, shareholders will receive the agreed-upon price for their stake in the company. Then, the new owner will delist it, removing it from public stock exchanges.

For investment firms, privatization makes sense when they believe the broader market undervalues a company or that their influence and ownership of a company can help expand it. Shareholders often approve privatization takeover offers because the premium typically represents a significant return on their investment.

In general, investment firms that take businesses private have a medium-to-long-term plan to turn a profit on the company. They may merge the acquisition into another business they own, sell it to another private investment firm, or even take it public again in the future.

What it means for investors

When a takeover is announced, shares in the firm getting acquired will generally increase to the reported acquisition price. Shares may trade slightly below this price depending on investor confidence in whether the deal will go through.

After the announcement, Duck Creek shares jumped to $19 per share and have not moved more than 10 cents in either direction since, showing investor confidence in the completion of the deal.

Interested investors could consider buying shares when they sink below $19, but the returns are unlikely to be worth doing so.

Investors who want to take advantage of the significant gains that come when a company gets acquired and goes private may instead look to buy shares in firms they feel are widely undervalued and appeal to private investment firms.

The bottom line

Companies go private every day. Due to the premiums involved, it can be an exciting time for investors lucky enough to own shares in those companies. However, knowing which businesses are about to be acquired is incredibly difficult.

If picking these companies sounds too tricky, consider investing with Q.ai. Our artificial intelligence scours the markets for the best investments for all manner of risk tolerances and economic situations. Then, it bundles them up in handy Investment Kits that make investing straightforward and strategic.

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