⚖️ For Fairness Sake ⚖️ Medallia acquired by Thoma Bravo for ~$6.4 billion
A quick look at Medallia's fairness opinion
Medallia acquired by Thoma Bravo for ~$6.4 billion
This is a little more preliminary look since the PREM14A with the fairness was just filed and we are missing some data that may get filled in. I will likely update this post as we get more data.
Medallia / Thoma Bravo deal overview
July 26, 2021 – Medallia (NYSE: MDLA), the global leader in customer and employee experience, announced that it has entered into a definitive agreement to be acquired by Thoma Bravo, a leading software investment firm, in an all-cash transaction that values Medallia at $6.4 billion.
Under the terms of the agreement, Medallia shareholders will receive $34.00 per share in cash, which represents a premium of ~20% to Medallia’s unaffected closing stock price on June 10, 2021, the last full trading day prior to media reports regarding a possible transaction, and a premium of ~29% to Medallia’s unaffected 30-day average price.
Transaction Details
Thoma Bravo has also entered into voting agreements with Medallia’s directors and executive officers, and investment funds affiliated with these individuals. Under these agreements, which represent ~34% of Medallia’s outstanding shares, the applicable shareholders have agreed to vote in favor of the transaction, subject to certain terms and conditions contained therein.
The agreement includes a 40-day “go-shop” period expiring on September 4, 2021.
Termination fee of $95,550,000 if superior proposal with a specified party
Termination fee of $191,110,000
Reverse termination fee of $382,220,000
The transaction is expected to close in 2021, subject to customary closing conditions, including approval by Medallia shareholders and receipt of regulatory approvals.
Advisors
Morgan Stanley & Co. LLC is serving as lead financial advisor to Medallia, and BofA Securities and Wells Fargo Securities are also serving as financial advisors.
Wilson Sonsini Goodrich & Rosati, Professional Corporation is serving as Medallia’s legal advisor.
Kirkland & Ellis LLP is serving as legal advisor to Thoma Bravo.
Debt financing for the transaction is being provided by Blackstone Credit, certain funds managed by affiliates of Apollo Capital Management, L.P., KKR Credit, Thoma Bravo Credit and Antares Capital.
Background of the merger
TL;DR: Since completing its IPO in July 2019, Medallia’s stock price has exhibited significant volatility. This volatility was often associated with investor concerns related to (1) the nature of Medallia’s operating results, which reflect quarter-over-quarter fluctuations in Medallia’s bookings; and (2) Medallia’s ability to grow at a consistent rate. Given customer concentration in the hospitality sector, Medallia’s business was also significantly impacted during the first half of 2020 due to the COVID-19 pandemic. The process really started in April 2021 when Thoma Bravo and another Financial Sponsor both inquired about a potential acquisition. Medallia ran a Targeted Auction, that had some initial traction that fell off relatively quickly. Thoma Bravo was the only party left interested in acquiring the whole compnay, with another Sponsor only offering a Convertible debt instrument. Thoma Bravo re-traded its initial $35 IOI based on diligence, and ended up with a final offer of $34. Medallia engaged 2 additional banks for the go-shop process, which expired with no new offers.
Offer timeline
The wringer
Medallia filed PREM14A on September 3, 2021 that contained MS’s fairness opinion. MS delivered an oral and written opinion to the BoD on July 25, 2021. The initial submission is missing a good amount of key financial data need to recreate the analysis, we will see if Investors sue to get more disclosure.
Medallia has agreed to pay Morgan Stanley a fee of ~$45 million for its services, $5 million of which has been paid following delivery of the opinion and the remainder of which is contingent upon the consummation of the merger.
It is fair to MS. This works out to ~0.7% of the $6.4 billion enterprise value, which would probably be at the higher end of M&A sell-side fee tables.
For its fee, MS goes with its standard valuation methods and a few for reference only.
Trading comparables
Transaction comparables
DCF
Discounted Equity analysis
Historical trading range
Research Analyst price targets
Illustrative Precedent Transaction Premiums
A few caveats before we begin diving into the numbers. I am not going to be able tie out all the share price ranges due to several factors:
Financials projections are rounded to the ones
Quarterly projections not provided
A full option schedule was not provided in any filings
Treatment of Convertible debt
Extrapolations through calendar year 2030 prepared by Morgan Stanley with the guidance of Medallia management not provided
Wall Street case financials not provided
Trading comps multiples not provided
Again, the old saying still applies, “you get what you pay for” and this is free. That said, we are in the ballpark for all analysis, so let’s dive in.
Update: In response to litigation Medallia filed an updated DEFR14A on October 7, 2021, with additional disclosure.
Valuation Summary
Is it Fair?
As my Mail Clerk used to say, only God and the Delaware Courts can decide that.
Ran a targeted auction initially with nine potential acquirers—four strategic acquirers and five financial acquirers
Only one final offer for the whole company
Go-shop period did not result in any offers
Premium of ~20%, to the closing price of our common stock on June 10, 2021, is probably at the low end of acceptable
Offer is at the middle to low end of almost all the valuation ranges MS chose
$34 is well below 52 week high
Management projected financials
(1) Totals may not foot due to rounding.
(2) Non-GAAP operating expenses include non-GAAP sales and marketing, research and development, and general and administrative expenses.
(3) Non-GAAP EBIT is defined as Medallia’s GAAP loss from operations plus stock-based compensation, employer payroll tax expense related to stock-based compensation, amortization of acquired intangible assets, acquisition-related costs, option acceleration payments, and restructuring and other expenses.
(4) Additional cash adjustments include cash expenses for acquisitions and corporate development, employee RSU taxes and option payment expenses.
(5) Not provided to Parent.
(6) EBITDA is defined as Medallia’s non-GAAP EBIT less cash expenses for acquisitions and corporate development, employee RSU taxes and option payment expenses, plus depreciation, and less stock based compensation expenses.
(7) Unlevered free cash flow is defined as Medallia’s EBITDA less taxes (at estimated marginal tax rate) less capital expenditures including capitalized R&D, plus or minus changes in net working capital and other adjustments.
Discounted Cash Flow Analysis
Morgan Stanley first calculated the estimated unlevered free cash flow, which is defined as earnings (burdened by stock based compensation expense) before interest, taxes, depreciation and amortization, less (1) taxes, and (2) capital expenditures, including capitalized research and development, and plus or minus changes in net working capital. The management case included extrapolations through calendar year 2030 prepared by Morgan Stanley with the guidance of Medallia management (which extrapolations were reviewed and approved for Morgan Stanley’s use by Medallia management).
The free cash flows and terminal values were discounted, using a midyear convention, to present values as of July 31, 2021, at a discount rate ranging from 7.7 percent to 9.6 percent, which discount rates were selected, upon the application of Morgan Stanley’s professional judgment and experience, to reflect an estimate of Medallia’s weighted average cost of capital determined by the application of the capital asset pricing model. Morgan Stanley utilized perpetual growth rates of 3.0 percent to 4.0 percent as part of its analyses, with such rates selected upon the application of Morgan Stanley’s professional judgment and experience. The resulting aggregate value was then adjusted for net debt and further adjusted for the net present value of net operating losses.
Based on the outstanding shares of our common stock on a fully diluted basis as provided by Medallia management, Morgan Stanley calculated the estimated implied value per share of our common stock as follows:
Selected Companies Analysis
Medallia lists the following companies in its 10K as competitors:
In-house solutions or custom-development efforts
Survey tools, such as Qualtrics and SurveyMonkey
Contact center technology companies, such as Nice and Verint Systems
Full-service consulting firms, such as MaritzCX and Towers Watson
Morgan Stanley performed a public trading comparables analysis, which attempts to provide an implied value of a company by comparing it to similar companies that are publicly traded. Morgan Stanley reviewed and compared certain financial estimates for Medallia with comparable publicly available consensus equity analyst research estimates for companies, selected based on Morgan Stanley’s professional judgment and experience, that share similar business characteristics and have certain comparable operating characteristics including, among other things, similarly sized revenue and/or revenue growth rates, market capitalizations, profitability, scale and/or other similar operating characteristics (these companies are referred to as the “comparable companies”). These companies were the following:
For purposes of this analysis, Morgan Stanley analyzed the ratio of aggregate value to estimated revenue, which, for purposes of this analysis, (1) for Medallia, (a) was provided to Morgan Stanley, and approved for Morgan Stanley’s use, by Medallia management for calendar years 2021 and 2022 for the management case, and (b) was based on the estimates of a selected publicly available equity research analyst for calendar years 2021 and 2022 for the street case and approved for use by Morgan Stanley by the management of Medallia; and (2) for each of the comparable companies, was based on publicly available consensus equity analyst research estimates for comparison purposes. For purposes of its analyses, Morgan Stanley defined “aggregate value” as a company’s fully diluted equity value plus total debt, plus noncontrolling interest, plus preferred stock, less cash and cash equivalents.
Based on its analysis of the relevant metrics for each of the comparable companies and upon the application of its professional judgment and experience, Morgan Stanley selected representative ranges of aggregate value to estimated revenue multiples, and applied these ranges of multiples to the estimated relevant revenue metric for Medallia. For purposes of this analysis, Morgan Stanley utilized publicly available financial information, available as of July 23, 2021 (the last full trading day prior to the meeting of the Medallia Board to approve and adopt the merger agreement).
Based on the outstanding shares of our common stock on a fully diluted basis and latest cash and debt balance as provided by Medallia management, Morgan Stanley calculated the estimated implied value per share of Medallia common stock as follows:
Selected Transactions Analysis
Morgan Stanley performed a precedent transactions multiples analysis, which is designed to imply a value of a company based on publicly available financial terms of selected comparable transactions. Morgan Stanley selected such comparable transactions because they shared certain characteristics with the merger, most notably because they were similar software transactions. For such transactions, Morgan Stanley noted the multiple of aggregate value of the transaction to the estimated next 12 months’ (which we refer to as “NTM”) revenue based on publicly available information at the time of announcement of each such transaction.
The following is a list of the selected software transactions reviewed, together with the applicable multiple for each such transaction:
Based on its analysis of the relevant metrics and time frame for each of the transactions listed above and upon the application of its professional judgment and experience, Morgan Stanley selected representative ranges of the aggregate value to the estimated NTM revenue multiples of the transactions, and applied these ranges of multiples to the estimated calendar year 2021 NTM, based on the street case and management case. The following table summarizes Morgan Stanley’s analysis:
Discounted equity value analysis
Morgan Stanley performed a discounted equity value analysis, which is designed to provide insight into the potential future equity value of a company as a function of such company’s estimated future revenue. The resulting equity value is subsequently discounted to arrive at an estimate of the implied present value. In connection with this analysis, Morgan Stanley calculated a range of implied present equity values per share of our common stock on a standalone basis for each of the street case and management case.
To calculate these discounted fully diluted equity values, Morgan Stanley utilized calendar year 2023 revenue estimates under each of the street case and management case, respectively. For the street case, the 2023 revenue estimate was extrapolated and reviewed and approved for use by Morgan Stanley by Medallia management. Based upon the application of its professional judgment and experience, Morgan Stanley applied a forward range of aggregate value to estimated revenue multiples (based on the range of aggregate value to revenue multiples for the comparable companies) to these revenue estimates, respectively, in order to reach a future-implied fully diluted aggregate value.
In each case, Morgan Stanley then added estimated future net cash (with such estimates provided by Medallia management for the management case and extrapolated for the street case (which extrapolations were reviewed and approved by Morgan Stanley’s use by Medallia management)) to Medallia’s future implied aggregate value to reach a future implied fully diluted equity value. In each case, Morgan Stanley then divided the future-implied fully diluted equity value by estimated fully diluted shares outstanding (with such estimates provided by Medallia management) to calculate a per-share price. Morgan Stanley then discounted the resulting implied future share price by two years to July 31, 2021, at a discount rate of 9.1 percent, which rate was selected based on Medallia’s estimated cost of equity, which was arrived at by applying the capital asset pricing model, to calculate the discounted fully diluted equity value.
Other Information
Morgan Stanley observed additional factors that were not considered part of Morgan Stanley’s financial analysis with respect to its opinion, but which were noted as reference data for the Medallia Board.
Illustrative Precedent Transaction Premiums
Morgan Stanley performed an illustrative precedent transaction premiums analysis by reviewing software company transactions larger than $1 billion in aggregate value since 2014. For these transactions, Morgan Stanley noted the distributions of the following financial statistics, where available: (1) the implied premium to the acquired company’s closing share price on the last trading day prior to announcement (or the last trading day prior to the share price being affected by acquisition rumors or similar merger-related news); and (2) the implied premium to the acquired company’s 52-week high closing share price prior to announcement.
Based on its analysis of the premia for such transactions and based upon the application of its professional judgment and experience, Morgan Stanley selected (1) a representative range of premia and applied such range to Medallia’s closing share price on June 10, 2021 (the last full trading day prior to the share price being affected by acquisition rumors) and (2) a representative range of premia and applied such range to Medallia’s 52-week high.
Historical Trading Ranges
Morgan Stanley noted certain trading ranges with respect to the historical share prices of our common stock. Morgan Stanley reviewed a range of closing prices of our common stock for (1) various periods ending on July 23, 2021 (the last full trading day prior to the meeting of the Medallia Board to approve and adopt the merger agreement) and (2) a 30-trading day period ending on June 10, 2021 (the last full trading day prior to the share price being affected by acquisition rumors). Morgan Stanley observed the following:
Equity Research Analysts’ Future Price Targets
Morgan Stanley noted certain future public market trading price targets for our common stock prepared and published by equity research analysts prior to July 23, 2021 (the last full trading day prior to the meeting of the Medallia Board to approve and adopt the merger agreement). These targets reflected each analyst’s estimate of the future public market trading price of our common stock. The 25th to 75th percentile range of undiscounted analyst price targets for our common stock was $40.00 to $44.00 per share as of June 1, 2021 to July 15, 2021, with a median of $42.00 per share. Morgan Stanley discounted the range of analyst price targets per share for our common stock by one year at a rate of 9.1 percent, which discount rate was selected by Morgan Stanley, upon the application of its professional judgment and experience, to reflect Medallia’s cost of equity. This analysis indicated an implied range of fully diluted equity values for our common stock of $36.67 to $40.34, with a median of $39.00 per share, as discounted by one year based on the 25th to 75th percentile undiscounted analyst price targets, as of July 23, 2021 (the last full trading day prior to the meeting of the Medallia Board to approve and adopt the merger agreement).
Background of the Mergers
Since completing its initial public offering in July 2019, Medallia’s stock price has exhibited significant volatility. This volatility was often associated with investor concerns related to (1) the nature of Medallia’s operating results, which reflect quarter-over-quarter fluctuations in Medallia’s bookings; and (2) Medallia’s ability to grow at a consistent rate. Given customer concentration in the hospitality sector, Medallia’s business was also significantly impacted during the first half of 2020 due to the COVID-19 pandemic.
On April 7, 2021, a representative of a financial acquirer (which we refer to as “Financial A”) contacted Leslie Stretch, our president and chief executive officer, regarding Financial A’s interest in exploring a potential acquisition of Medallia. Financial A did not propose specific terms of an acquisition at this time. Mr. Stretch was familiar with Financial A, but had not previously discussed an acquisition of Medallia with Financial A.
On April 11, 2021, a representative of Thoma Bravo contacted Mr. Stretch regarding Thoma Bravo’s interest in exploring a potential acquisition of Medallia. Thoma Bravo did not propose specific terms of an acquisition at this time. Mr. Stretch was familiar with Thoma Bravo, but had not previously discussed an acquisition of Medallia with Thoma Bravo.
On April 13, 2021, Following discussions with Thoma Bravo and Financial A, Mr. Stretch spoke with members of the Medallia Board and informed them of the communications from, and discussions with, Thoma Bravo and Financial A.
On April 23, 2021, Mr. Stretch and Roxanne Oulman, executive vice president and chief financial officer, spoke with representatives of Morgan Stanley about the communications from Financial A and Thoma Bravo. During this conversation, the parties also discussed, in general terms, (1) the nature of the strategic alternatives that could be available to Medallia should it elect to pursue a strategic review process; (2) the broad outlines of a process that Medallia might engage in to evaluate its strategic alternatives; (3) and the possibility that Morgan Stanley could serve as our financial advisor in connection with a review of strategic alternatives. Morgan Stanley is well known to Medallia and Medallia management given Morgan Stanley’s qualifications, extensive expertise, international reputation, knowledge of the industry in which Medallia operates and experience in advising software companies in connection with potential strategic transactions.
On May 3, 2021, financial acquirer (which we refer to as “Financial B”) contacted Mr. Stretch regarding Financial B’s interest in exploring a potential acquisition of Medallia. Mr. Stretch was familiar with Financial B, but had not previously discussed an acquisition of Medallia with Financial B.
On May 5, 2021, Mr. Stretch updated the Medallia Board about the communications from, and discussions with, Thoma Bravo, Financial A and Financial B. Mr. Stretch expressed his view that it would be appropriate to better understand the nature of each firm’s interest in an acquisition of Medallia. It was the consensus of the Medallia Board to allow Mr. Stretch to share limited diligence information with Thoma Bravo, Financial A and Financial B.
On May 7, 2021, Mr. Stretch and Ms. Oulman met with representatives of Thoma Bravo to discuss Medallia and its business. During this meeting, Mr. Stretch and Ms. Oulman provided their preliminary views on our financial and operating results for our fiscal first quarter.
On May 9, 2021, Mr. Stretch and certain members of the Medallia Board met informally with representatives of Wilson Sonsini Goodrich & Rosati, Professional Corporation, outside counsel to Medallia. Those present discussed the acquisition interest expressed by Financial A, Thoma Bravo and Financial B.
On May 20, 2021, Mr. Stretch and a representative of Thoma Bravo spoke about Thoma Bravo’s continued interest in acquiring Medallia. After this discussion, Thoma Bravo submitted a preliminary, nonbinding written indication of interest to acquire Medallia in an all-cash transaction for $30.00 per share of our common stock.
Later on May 20, 2021, Morgan Stanley discussed the major strategic alternatives available to Medallia, including (1) the continuation of our current business plan with Medallia remaining as an independent company; and (2) a sale of Medallia. As part of this discussion, the representatives of Morgan Stanley provided Morgan Stanley’s preliminary view as to the most likely potential strategic and financial acquirers of Medallia based on (1) Morgan Stanley’s judgment and experience; (2) the strategic fit of Medallia with each potential acquirer; and (3) the ability and likelihood of each potential acquirer to engage in, and consummate, an acquisition of Medallia. After considering our near- and long-term prospects as an independent company, as well as (1) the terms of the preliminary, nonbinding written indication of interest from Thoma Bravo and (2) the acquisition interest expressed by Financial A and Financial B, the Medallia Board was of the view that a sale of Medallia in the near term could be in the best interests of Medallia and our stockholders. As a result, the Medallia Board determined to commence a process to explore our strategic alternatives, including a possible sale of Medallia. To assist in the review of strategic alternatives, the Medallia Board established a strategic committee. The Strategic Committee was formed in light of (1) the potentially significant workload that could be involved in evaluating strategic alternatives; (2) the possibility that Medallia management may need feedback and direction on relatively short notice; and (3) the benefits and convenience of having a subset of directors oversee and direct the process of considering strategic alternatives. The Medallia Board authorized and instructed the Strategic Committee, among other things, to (1) oversee and provide assistance to Medallia management and our advisers with respect to the exploration, evaluation, consideration, review and negotiation of the terms and conditions of any strategic alternative, including any sale of Medallia; (2) take such other actions with respect to any strategic alternative as the Strategic Committee deemed necessary, appropriate or advisable; and (3) recommend to the Medallia Board what action, if any, should be taken by Medallia with respect to any such transaction. The Medallia Board retained the power and authority to approve the final decision on pursuing a strategic alternative, including a sale of Medallia. It was also understood that the Medallia Board would continue to have an active role in the consideration of strategic alternatives. The Medallia Board appointed Robert Bernshtyn, Mitchell K. Dauerman and Douglas M. Leone as the members of the Strategic Committee. Finally, the Medallia Board authorized the retention of a financial adviser to assist us with a review of strategic alternatives, and delegated authority to the Strategic Committee to select and retain this financial advisor.
On May 21, 2021, the Strategic Committee met, with members of Medallia management and representatives of each of Morgan Stanley and Wilson Sonsini in attendance. The representatives of Morgan Stanley discussed potential strategic and financial acquirers that, in Morgan Stanley’s view, were the most likely to have an interest in an acquisition of Medallia based on (1) Morgan Stanley’s judgment and experience; (2) the strategic fit of Medallia with each potential acquirer; and (3) the ability and likelihood of each potential acquirer to engage in, and consummate, an acquisition of Medallia. The Strategic Committee determined to undertake the exploration of strategic alternatives through a targeted, private process focused on the strategic and financial buyers identified by Morgan Stanley (and agreed to by the Strategic Committee) as the most likely to have an interest in acquiring Medallia. The Strategic Committee believed that a targeted, private process had the greatest potential to minimize the risk of unwanted public disclosure and speculation that Medallia was pursuing a sale. The Strategic Committee further believed that any public disclosure and speculation concerning our future would be harmful to our business and competitive position, as well as to our relationships with our employees, customers and prospects.
The Strategic Committee was informed that Financial B wished to work cooperatively with another financial acquirer (“Financial C”) and one of Financial B’s portfolio companies (“PortfolioCo”) in connection with considering an acquisition of Medallia. We refer to these three potential acquirers collectively as the “Consortium Group.” Medallia and PortfolioCo have a go-to-market relationship. The Strategic Committee determined to allow this cooperation due to, among other things, the potential synergy value associated with a combination of Medallia and PortfolioCo and the possibility that either or both of Financial B or Financial C would not pursue an acquisition on their own. The Strategic Committee also reviewed the terms of, and approved our entry into, an engagement letter with Morgan Stanley. The Strategic Committee selected Morgan Stanley in view of Morgan Stanley’s qualifications, extensive expertise, international reputation, knowledge of the industry in which Medallia operates and experience in similar situations.
Also on May 21, 2021, Ms. Oulman and representatives of Morgan Stanley met with representatives of Financial B to discuss financial due diligence matters.
On May 25, 2021, After discussion, the Strategic Committee determined that a list of nine potential acquirers—four strategic acquirers and five financial acquirers (comprised of Thoma Bravo, Financial A, Financial B and Financial C (working together with PortfolioCo as part of the Consortium Group), and a fifth financial acquirer that we refer to as “Financial D”)—were the most likely to have an interest in acquiring Medallia and the ability to pursue an acquisition on an expedited basis. The Strategic Committee assigned responsibility to Morgan Stanley and certain members of the Strategic Committee to contact each potential acquirer regarding its interest in an acquisition of Medallia (which assignments were based on the strength of historical relationships with each potential acquirer). Morgan Stanley also provided Morgan Stanley’s preliminary views on our stock price performance and compared it to other companies and the broader market. It was the consensus of the Strategic Committee that the strategic review process should be conducted quickly to minimize distraction for Medallia’s management team. As such, the Strategic Committee instructed Morgan Stanley to set proposed timelines with the potential acquirers, with the objective of receiving preliminary or revised acquisition proposals from all of those interested by June 15, 2021.
Also on May 25, 2021, representatives of Morgan Stanley spoke with representatives of Financial D concerning Financial D’s possible interest in exploring an acquisition of Medallia.
Also on May 25, 2021, Financial A submitted a preliminary, nonbinding written indication of interest to acquire Medallia in an all-cash transaction for $30.00 per share of our common stock.
On May 26, 2021, the Consortium Group submitted a preliminary, nonbinding written indication of interest to acquire Medallia in an all-cash transaction for $33.00 per share of our common stock.
Also on May 26, 2021, a member of the Strategic Committee spoke separately with representatives of two different potential strategic acquirers (which we refer to as “Strategic A” and “Strategic B,” respectively) concerning their possible interest in exploring an acquisition of Medallia.
Also on May 26, 2021, Morgan Stanley spoke with a representative of a potential strategic acquirer (which we refer to as “Strategic C”) regarding Strategic C’s interest in exploring an acquisition of Medallia.
On May 27, 2021, Mr. Stretch spoke with a representative of a potential strategic acquirer (which we refer to as “Strategic D”) concerning Strategic D’s possible interest in exploring an acquisition of Medallia.
On May 28, 2021, Mr. Stretch, Ms. Oulman and other members of Medallia management met with representatives of PortfolioCo to discuss our sales and go-to-market strategies and initiatives.
Also on May 28, 2021, Members of Medallia management reviewed with the Medallia Board a draft of the Projected Financial Information and described, among other things, the process for preparing the Projected Financial Information, including the underlying assumptions and various execution and other risks to realizing the Projected Financial Information. The Medallia Board approved (1) the use of the Projected Financial Information for purposes of Morgan Stanley’s financial analysis of Medallia; and (2) providing the Projected Financial Information to potential acquirers at the discretion of the Strategic Committee.
In early June 2021, consistent with the instructions of the Strategic Committee, Morgan Stanley informed each potential acquirer that it should submit an initial or revised written indication of interest to acquire Medallia no later than June 15, 2021.
On June 2, 2021, Mr. Stretch, Ms. Oulman, other members of Medallia management and representatives of Morgan Stanley met with representative of Strategic A to discuss Medallia and its business.
On June 4, 2021, and June 5, 2021, opened an online data room for the purpose of allowing interested parties to conduct due diligence on Medallia. Each of Thoma Bravo, Financial A, the Consortium Group and Strategic A requested, and were granted, access to the data room. Financial D received access to the data room at a later date.
On June 7, 2021, members of Medallia management and representatives of Morgan Stanley met with representatives of Strategic A to discuss Medallia and its technology.
On June 10, 2021, Mr. Stretch, Ms. Oulman, other members of Medallia management and representatives of Morgan Stanley met with representatives of Strategic C to discuss Medallia and its business.
On June 11, 2021, Bloomberg published an article speculating that Medallia was pursuing a sale process.
On June 13, 2021, Mr. Stretch and Ms. Oulman met with representatives of Financial D to discuss Medallia and its business.
By June 15, 2021, each of Strategic A, Strategic B, Strategic C and Strategic D confirmed that it did not wish to pursue an acquisition of Medallia. In addition, both Financial A and the Consortium Group withdrew their indications of interest and stated that they did not intend to further pursue an acquisition of Medallia.
During the course of reviewing strategic alternatives, Medallia ultimately entered into confidentiality agreements with Strategic A, Thoma Bravo, Financial A, Financial B, Financial C, PortfolioCo and Financial D. None of these confidentiality agreements included a “standstill” or a restriction on making acquisition proposals.
On June 15, 2021, Thoma Bravo submitted a revised preliminary, nonbinding written indication of interest to acquire Medallia in an all-cash transaction for $35.00 per share of our common stock.
On June 16, 2021, and in response to the Bloomberg article, a senior representative of a financial acquirer (which we refer to as “Financial E”) contacted a representative of Morgan Stanley to inquire about any strategic review process involving Medallia that was being conducted.
Also on June 16, 2021, Financial D submitted a preliminary, nonbinding written indication of interest to invest $700 million in Medallia through a convertible preferred equity instrument, with the proceeds being used to repurchase a portion of our outstanding common stock.
Later on June 16, 2021, the Medallia Board met, with members of Medallia management and representatives of each of Morgan Stanley and Wilson Sonsini in attendance. The Medallia Board reviewed (1) the indications of interest from Thoma Bravo and Financial D; and (2) the commentary provided by the four potential strategic acquirers, Financial A and the Consortium Group as to why each was not pursuing an acquisition of Medallia. The representatives of Morgan Stanley reviewed and discussed with the Medallia Board Morgan Stanley’s preliminary financial analysis of Thoma Bravo’s June 15 proposal, and a summary of the proposal from Financial D. They also compared the Projected Financial Information to publicly available estimates prepared by equity research analysts reporting on Medallia. It was the consensus of the Medallia Board that we should continue discussions with each of Thoma Bravo and Financial D. The Medallia Board instructed Morgan Stanley to inform Thoma Bravo and Financial D that Medallia would permit an additional two weeks of due diligence. In addition, the Medallia Board instructed Morgan Stanley to request that Thoma Bravo and Financial D improve the price and other terms of their proposals and submit revised proposals by July 1, 2021. Finally, Morgan Stanley was instructed to inform Thoma Bravo that, although Thoma Bravo would be permitted to perform additional due diligence, the Medallia Board expected Thoma Bravo to maintain a proposed acquisition price of no less than $35.00 per share of our common stock.
Following the meeting of the Medallia Board on June 16, 2021, the Strategic Committee met, with members of Medallia management and representatives of each of Morgan Stanley and Wilson Sonsini in attendance. The Strategic Committee discussed the indications of interest from Thoma Bravo and Financial D. The Strategic Committee also discussed Financial E and its possible interest in an acquisition of Medallia. The Strategic Committee instructed Morgan Stanley to speak again with representatives of Financial E. A representative of Morgan Stanley subsequently spoke with a representative of Financial E to introduce this representative to Mr. Stretch.
Later on June 16, 2021, and in response to the Bloomberg article, a senior representative of a financial acquirer (which we refer to as “Financial F”) contacted a representative of Morgan Stanley to inquire about any strategic review process involving Medallia that was being conducted. The representative of Morgan Stanley subsequently introduced the representative of Financial F to Mr. Stretch.
Throughout the remainder of June 2021, Thoma Bravo and Financial D engaged in due diligence, which included meetings with members of Medallia management and representatives of Morgan Stanley.
On June 22, 2021, Mr. Stretch spoke with a senior representative of Financial E who informed Mr. Stretch that Financial E did not intend to actively pursue an acquisition of Medallia.
On June 25, 2021, the Strategic Committee met, with members of Medallia management and representatives of each of Morgan Stanley and Wilson Sonsini in attendance. The Strategic Committee discussed the proposals from Thoma Bravo and Financial D. Members of Medallia management also provided an update on preliminary expected results for Medallia’s second fiscal quarter, which results were ahead of internal expectations.
On June 28, 2021, Mr. Stretch spoke with a senior representative of Financial F concerning Medallia and Financial F’s preliminary, nonspecific interest in potentially considering an acquisition of Medallia.
Also on July 1, 2021, Financial D submitted a revised preliminary, nonbinding written indication of interest to invest $900 million in Medallia through a convertible preferred equity instrument, with the proceeds being used to repurchase a portion of our outstanding common stock. This indication of interest also lowered the proposed dividend rate but kept the same conversion price from Financial D’s original proposal.
Also on July 1, 2021, representatives of Thoma Bravo informed representatives of Morgan Stanley that Thoma Bravo was lowering its proposal to acquire Medallia to $33.00 per share of our common stock, which reflected Thoma Bravo’s latest assessment of Medallia’s valuation based on its ongoing due diligence review.
On July 2, 2021, The Strategic Committee discussed the proposals from Thoma Bravo and Financial D. The Strategic Committee determined to (1) inform Thoma Bravo that the Medallia Board would not consider an acquisition at a price of less than $35.00 per share of our common stock (which determination was consistent with the expectation previously communicated to Thoma Bravo); (2) make a counterproposal to, and continue negotiations with, Financial D; and (3) allow both Thoma Bravo and Financial D to conduct additional due diligence. Members of Medallia management also provided an update on preliminary results for Medallia’s second fiscal quarter, and confirmed that these results did not necessitate any updates to the Projected Financial Information.
On July 4, 2021, Financial D submitted a further revised preliminary, nonbinding written indication of interest to invest $900 million in Medallia through a convertible preferred equity instrument, with the proceeds being used to repurchase a portion of our outstanding common stock. This indication of interest also proposed alternative dividend rates and conversion prices for the Medallia Board to consider. Thereafter, Morgan Stanley and Financial D continued to negotiate the terms of Financial D’s proposal.
During the weeks of July 5, 2021, and July 12, 2021, Thoma Bravo and Financial D conducted additional due diligence.
On July 13, 2021, the Strategic Committee met, with members of Medallia management and representatives of each of Morgan Stanley and Wilson Sonsini in attendance. The representatives of Wilson Sonsini reviewed with the members of Strategic Committee their fiduciary duties. The representatives of Morgan Stanley reviewed and discussed Morgan Stanley’s preliminary financial analysis of the proposal from Financial D. After discussing the proposal made by Financial D, the Strategic Committee determined that a minority investment of the type contemplated by Financial D was not of interest. The Strategic Committee instructed Morgan Stanley to inform Financial D of (1) this decision; (2) the Strategic Committee’s preference for a transaction involving the acquisition of all of Medallia at a price in cash in excess of $35.00 per share of our common stock; and (3) the Strategic Committee’s desire that Financial D pursue an acquisition of all of Medallia (whether on its own or in partnership with another financial acquirer). The Strategic Committee further instructed Morgan Stanley to reinforce with Thoma Bravo that the Medallia Board was interested in an acquisition at a price in cash of $35.00 per share of our common stock with high deal certainty. The Strategic Committee also reviewed the results of the strategic review process. As part of this review, the Strategic Committee noted (1) the June 11, 2021, Bloomberg article speculating that Medallia was pursuing a sale process; (2) the absence, following that article, of any expressed interest in pursuing an acquisition of Medallia by anyone other than Financial E and Financial F; and (3) the failure by Financial E and Financial F to affirmatively state a specific interest in acquiring Medallia or to pursue any discussions regarding an acquisition. Given these considerations, the Strategic Committee discussed (1) the solicitation efforts engaged in by Morgan Stanley and (2) whether additional affirmative contacts with other potential acquirers (including Financial E or Financial F) were warranted. Notwithstanding the Strategic Committee’s satisfaction with the solicitation efforts to date, the Strategic Committee also discussed the possibility of negotiating for a “go-shop” provision in any definitive merger agreement governing an acquisition of Medallia. Such a provision would permit Medallia, for a specified period, to affirmatively solicit alternative transactions following entry into the definitive merger agreement. Members of Medallia management also provided an update on preliminary results for Medallia’s second fiscal quarter, and confirmed that these results did not necessitate any updates to the Projected Financial Information. Mr. Stretch confirmed to the Strategic Committee that neither he nor any other member of Medallia management had engaged in any discussions with Thoma Bravo or any other potential acquirer concerning any “rollover” of his equity stake in Medallia in connection with a potential acquisition, or any or potential terms of employment following an acquisition. Following the meeting, at the direction of the Special Committee, Morgan Stanley informed Thoma Bravo and Financial D of the Strategic Committee’s respective determinations.
On July 15, 2021, Thoma Bravo submitted a revised preliminary, nonbinding written indication of interest to acquire Medallia in an all-cash transaction for $33.75 per share of our common stock.
Later on July 15, 2021, the Strategic Committee met, with members of Medallia management and representatives of each of Morgan Stanley and Wilson Sonsini in attendance. The representatives of Wilson Sonsini reviewed with the members of Strategic Committee their fiduciary duties. The Strategic Committee reviewed the latest proposal from Thoma Bravo and the status of discussions with Financial D (including Financial D’s continued focus on, and preference, for a minority investment, as well as the additional time and uncertainty surrounding any potential proposal by Financial D to acquire of all of Medallia). The Strategic Committee instructed Morgan Stanley to (1) reject Thoma Bravo’s latest acquisition proposal and request a “best and final” proposal from Thoma Bravo (which proposal should provide (a) for a “go-shop” process and (b) that Thoma Bravo would commit to fund, through equity investments, the entire purchase price, which would eliminate the need to obtain debt financing from third parties and the uncertainty related to that process); (2) inform Financial D that Medallia was only interested in receiving a proposal for an acquisition of all of Medallia and that such proposal should be provided quickly; and (3) speak again with Financial F to (a) ascertain whether Financial F was open to considering an acquisition on an immediate timetable; and (b) gauge Financial F’s possible interest in partnering with Thoma Bravo or Financial D, given that those firms had conducted a significant amount of due diligence. Following the meeting, at the direction of the Special Committee, Morgan Stanley informed Thoma Bravo and Financial D of the Strategic Committee’s respective determinations.
On July 16, 2021, Thoma Bravo submitted a revised preliminary, nonbinding written indication of interest to acquire Medallia in an all-cash transaction for $34.00 per share of our common stock. Thoma Bravo also expressed a willingness to consider permitting a “go-shop” process, but declined to provide a full equity commitment for the entire purchase price.
Also on July 16, 2021, the Strategic Committee approved allowing Financial D to speak with Financial A and Financial B regarding the willingness of either firm to partner with Financial D to pursue an acquisition of Medallia.
Also on July 16, 2021, a representative of Financial D informed a representative of Morgan Stanley that Financial D (1) continued to prefer a minority investment in Medallia; and (2) would not be in a position to make any proposal for an acquisition of all of Medallia for several weeks based on the additional due diligence that it would need to perform. Financial D also expressed that it was not likely to participate in any “go-shop” process involving Medallia.
On July 18, 2021, the Medallia Board met, with members of Medallia management and representatives of each of Morgan Stanley and Wilson Sonsini in attendance. The representatives of Wilson Sonsini reviewed with the members of the Medallia Board their fiduciary duties. The Medallia Board reviewed (1) the latest acquisition proposal from Thoma Bravo; and (2) the status of discussions with Financial D. The Medallia Board considered the uncertainty surrounding any potential acquisition proposal from Financial D. It was the consensus of the Medallia Board to pursue a transaction with Thoma Bravo. The Medallia Board did not accept Thoma Bravo’s proposal, but did instruct Wilson Sonsini to proceed with negotiating an appropriate merger agreement, with the objective (assuming satisfactory resolution of outstanding points) of being able to announce an acquisition of Medallia by Thoma Bravo no later than July 26, 2021. The Medallia Board also instructed Morgan Stanley to continue to encourage Financial D to submit a proposal to acquire all of Medallia.
On July 19, 2021, a representative of Morgan Stanley spoke with a representative of Financial F concerning Financial F’s willingness to consider an acquisition of Medallia on an immediate timetable and possible interest in partnering with another buyer. The representative of Financial F did not express a desire by Financial F to pursue an acquisition of Medallia.
Early on July 20, 2021, Wilson Sonsini, on behalf of Medallia, provided a draft merger agreement to legal counsel to Thoma Bravo.
Following delivery of the draft merger agreement, representatives of each of Wilson Sonsini and legal counsel to Thoma Bravo met regularly to negotiate the terms of the merger agreement and related disclosure letter. The principal areas of negotiation in the merger agreement included (1) the terms of the “go-shop” provision; (2) the termination fees payable by each of Medallia and Thoma Bravo and the circumstances in which those fees would be payable; (3) Thoma Bravo’s request to be able to delay the closing of the merger until November 1, 2021, in certain instances; and (4) the treatment of equity awards held by all of Medallia’s employees in the acquisition. Wilson Sonsini and legal counsel to Thoma Bravo also negotiated the terms of the limited guaranty, the equity commitment letter and the voting agreements.
Also on July 20, 2021, a representative of Morgan Stanley spoke with a representative of Financial A concerning Financial A’s interest in partnering with Financial D. The representative of Financial A stated that Financial A had concerns about Medallia’s valuation and was busy with other projects. As such, Financial A did not have any interest in further considering any participation in an acquisition of Medallia.
Also on July 20, 2021, a representative of Morgan Stanley spoke with a representative of Financial B concerning Financial B’s interest in partnering with Financial D. The representative of Financial B stated that, after speaking with a representative of Financial D, a partnership with Financial D did not impact Financial B’s view of Medallia’s valuation. As such, Financial B did not have any interest in further considering any participation in an acquisition of Medallia.
On July 23, 2021, Financial F spoke with a representative of Morgan Stanley. During this conversation, Financial F stated that, following additional review, Financial F did not have an interest in performing additional work to explore an acquisition of Medallia (either alone or in partnership with another buyer).
On July 23, 2021, The Strategic Committee determined to continue working with Thoma Bravo toward an acquisition. Although the Strategic Committee determined not to seek a further price increase from Thoma Bravo, it instructed Wilson Sonsini to continue to negotiate the draft merger agreement, with a focus on providing a high level of closing certainty for Medallia and appropriate flexibility for Medallia to solicit alternative transactions during the “go-shop” period.
On July 24, 2021, Morgan Stanley provided the Medallia Board with customary disclosures regarding Morgan Stanley’s relationships with Thoma Bravo and its affiliates and Financial D and its affiliates.
On July 25, 2021, The Strategic Committee reviewed the request of Medallia management to retain two additional financial advisers to work with Morgan Stanley during the “go-shop” period. The Strategic Committee also noted the customary relationship disclosures provided by Morgan Stanley and the two additional proposed financial advisers regarding each financial adviser’s relationships with Thoma Bravo and its affiliates; the Strategic Committee did not identify any concerns with these disclosures. The Strategic Committee approved the retention of both of these financial advisors given (1) the familiarity of these financial advisers with Medallia and participants in its industry; and (2) a desire to ensure that the “go-shop” process was conducted in as robust a manner as possible. The Strategic Committee determined to recommend that the Medallia Board approve the entry into the merger agreement.
Later on July 25, 2021, Morgan Stanley delivered Morgan Stanley’s oral opinion, subsequently confirmed in writing, to the Medallia Board that, as of July 25, 2021, and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in the written opinion, the per share price to be received by our stockholders (other than the holders of the excluded shares) pursuant to the merger agreement was fair from a financial point of view to such stockholders. The Strategic Committee provided its recommendation that the Medallia Board approve the entry into the merger agreement. Mr. Stretch confirmed to the Medallia Board that neither he nor any other member of Medallia management had engaged in any discussions with Thoma Bravo concerning any “rollover” of his equity stake in Medallia in connection with a potential acquisition, or any or potential terms of employment following an acquisition. The Medallia Board noted the customary relationship disclosures provided by Morgan Stanley and the two additional proposed financial advisers regarding each financial adviser’s relationships with Thoma Bravo and its affiliates; the Medallia Board did not identify any concerns with these disclosures. The Medallia Board, (1) determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement were fair to, advisable and in the best interests of Medallia and its stockholders; and (2) adopted and approved the merger agreement, the merger and the other transactions contemplated by the merger agreement. The representatives of Morgan Stanley described solicitation activities that could be undertaken during the “go-shop” period. The Medallia Board directed the Strategic Committee to oversee Medallia management, Morgan Stanley and the two additional financial advisers as they engaged in these activities following the entry into, and public disclosure of, the merger agreement.
Still later on July 25, 2021, the merger agreement, limited guaranty, equity commitment letter, debt commitment letter and voting agreements were signed.
Early on July 26, 2021, before the opening of trading on the NYSE, publicly disclosed our entry into the merger agreement.
Also on July 26, 2021, as directed by the Medallia Board, members of Medallia management and each of Morgan Stanley and the two other financial advisers that we retained began contacting potential strategic and financial acquirers (including Strategic A, Strategic B, Strategic C, Strategic D, Financial A, Financial B, Financial C, Financial D, Financial E and Financial F) about their interest in participating in the “go-shop” process.
On July 30, 2021, the Strategic Committee met, with members of Medallia management and representatives of each of Wilson Sonsini and Morgan Stanley in attendance. The members of Medallia management and the representatives of Morgan Stanley described their efforts in support of soliciting an alternative transaction to that contemplated by the merger agreement.
On September 7, 2021, announced the expiration of the 40-day “go-shop” period under the terms of the previously announced merger agreement pursuant to which Thoma Bravo will acquire Medallia in an all-cash transaction valued at $6.4 billion. The “go-shop” period expired at 12:01 a.m. on September 4, 2021. Pursuant to the merger agreement, Medallia’s Board of Directors, with the assistance of its financial advisors, actively solicited alternative acquisition proposals from potentially interested third parties; however, during the “go-shop” period Medallia did not receive any alternative acquisition proposals from any third party.