⚖️ For Fairness Sake ⚖️ Paint by numbers
A deep dive on Tableau Software's 2019 fairness opinion
Tableau acquired by Salesforce for $15.7 billion.
Much like Cecilia Gimenez above, Salesforce likely felt they were going to paint a beautiful picture for investors, with the acquisition of Tableau, Salesforce’s largest acquisition to date, after MuleSoft in 2018. Benioff has the reputation of being an emotional acquirer of companies, which can be a positive for the target companies when it comes to valuation. That said, I think Benioff probably felt similar to when he did the MuleSoft deal, which was initially questioned by investors, and nearly a year after the MuleSoft announcement, it was as a major source of Salesforce subscription growth.
Tableau / Salesforce deal overview
June 10, 2019 Salesforce and Tableau Software announced Salesforce would acquire Tableau in an all-stock transaction, where each share of Tableau Class A and Class B common stock will be exchanged for 1.103 shares of Salesforce common stock, implying a $175 share price (~42% premium), representing an enterprise value of $15.7 billion, based on the trailing 3-day volume weighted average price of Salesforce’s shares as of June 7, 2019. Salesforce is using ~12% of its equity to obtain a dominant #1 market share position with a combined ~27% share in Modern BI Platforms. There were no mentions of potential synergies, which isn’t unusual for Salesforce.
Background of the merger
TL;DR: In early December 2018 Salesforce and the Tableau explored possible ways that the companies could work together in the future. During a follow up meeting on December 18, to discuss various matters in the technology industry and possible ways that the companies could work together in the future, Mark Benioff raised the possibility of a strategic transaction. In January 2019, Benioff contacted Selipsky again to indicate that Salesforce would like to discuss a potential strategic combination in more detail. It was a negotiated deal between the two parties, Tableau never initiated a full-blown strategic process. The BoD seem to weigh losing Salesforce as a buyer if they commenced a full process. Both companies experienced some volatility to their stock prices over the course of the negotiation and worked to bridge various valuation gaps. On June 6, 2019 Salesforce actually reduced its offer from a range of $175-180 to $170. On June 10, 2019, the deal was announced at a 1.103 exchange ratio, implying a $175 share price (42.1% premium based on the $125.21 closing price on June 7, 2019, the last trading day before the date of the merger agreement).
Offer timeline
The wringer
Tableau filed 14D9 on July 3, 2019 that contained Goldman Sach’s fairness opinion. GS delivered an oral and written opinion to the BoD on June 9, 2019. The initial submission is missing some of key financial data need to recreate the analysis, and several investors filed lawsuits shortly after. Tableau filed a 14D9A on July 23, 2020 that filled in several of the holes in the data.
Tableau agreed to pay Goldman Sachs a transaction fee of ~$82 million, all of which was contingent upon consummation of the transaction.
It is definitely fair to GS. The fee works out to ~0.5% of the $15.7 billion enterprise value, which would probably be near the upper end of M&A sell-side fee tables.
For its fee, GS goes with the standard valuation methods and throws in a couple of extra for good measure.
Historical Exchange Ratio Analysis
Historical Stock Trading Analysis
DCF
Precedent Premium Analysis
Precedent Transactions Analysis
Public Comparables Analysis
Present Value of Future Share Price Analysis
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
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.
Valuation Summary
Is it Fair?
As my butcher used to say, only God and the Delaware Courts can decide that.
As we can see above, the $175 offer is above or near the top of almost all of the valuation ranges GS chose for the analysis
That said, the offer is in the bottom half of the DCF range, but it is a relatively wide range
Overall GS’s valuation range was 60% - 137% of the implied share prices as compared to the offer price, which is probably larger range than average
The 42% premium is healthy, above the 75th percentile for the last undisturbed stock price prior to announcement
An implied ~0.41x growth-adjusted calendar year 2020 revenue acquisition multiple is near the high end of the selected comps
That said, on February 10, 2020, a total of 49,138,989 Class A shares and 10,348,127 Class B shares were tendered, representing ~68.0% of the aggregate voting power.
The details of the Valuation Analysis are below, as well as the Key points in the background of the merger.
Let me know what you think in the comments below.
Management projected financials
Summary valuation
Historical Exchange Ratio Analysis
GS reviewed the historical trading prices for Tableau and Salesforce for the 52-week period prior to June 7, 2019. GS calculated historical average exchange ratios over various periods.
Historical Stock Trading Analysis
GS reviewed the historical trading prices and volumes of Tableau for various periods prior to June 7, 2019. This analysis indicated that the implied price per share based on the exchange ratio of 1.103x represented premiums of:
52.1% based on the average price of $116.93 during the 5-day period
54.6% based on the average price of $115.09 during the 10-day period
49.7% based on the average price of $118.80 during the 30-day period
43.2% based on the average price of $124.19 during the 90-day period
Discounted Cash Flow Analysis
Using discount rates ranging from 8.0% to 10.0%, reflecting estimates of Tableau’s weighted average cost of capital, discounted to PV as of Tableau’s latest reported balance sheet date of March 31, 2019 using the mid-year convention, (i) estimates of unlevered free cash flow for the nine months ended December 31, 2019 and years 2020 through 2033 (ii) a range of terminal values, which were calculated by applying perpetuity growth rates ranging from 2.5% to 4.5%, to a terminal year estimate of free cash flow (which implied exit terminal year multiples for next twelve months net operating profit after tax ranging from 13.5x to 28.7x). Derived ranges of illustrative enterprise values by adding the ranges of present values it derived above. Added to the range of illustrative enterprise values the net cash held by Tableau, as provided by the management to derive a range of illustrative equity values. Divided the range of illustrative equity values it derived by the number of fully diluted outstanding shares.
Calculate a range of implied equity values per share of Tableau of $114 to $239, as rounded to the nearest dollar
Implied a range of exchange ratios of 0.710x to 1.480x per share based on the closing price of $161.27 of Salesforce as of June 7, 2019
Precedent Premia Analysis
Using publicly available information, Goldman Sachs reviewed and analyzed acquisition premia for certain transactions.
Goldman Sachs calculated the 25th and 75th percentile premia of 11.0% and 33.8% relative to the target company’s last undisturbed stock price prior to the announcement of certain selected transactions.
Applied a range of premia ranging from 11.0% to 33.8%
Closing price of $125.21 per share as of June 7, 2019 (one trading day prior to the announcement of the transactions)
Calculated a range of implied equity values per share of Tableau of $139 to $168, as rounded to the nearest dollar
Implied a range of exchange ratios of 0.862x to 1.039x
Calculated the 25th and 75th percentile premia of 21.2% and 45.5% relative to the target company’s stock price 30 trading days prior to the last undisturbed date prior to the announcement of certain selected transactions.
Applied a range of premia ranging from 21.2% to 45.5%
Closing price of $120.70 per share as of April 26, 2019 (30 trading days prior to the announcement of the transaction)
Calculated a range of implied equity values per share of $146 to $176, as rounded to the nearest dollar
Implied a range of exchange ratios of 0.907x to 1.089x
Reviewed and analyzed acquisition premia from January 1, 2016 through June 7, 2019, involving a public company based in the United States in the technology industry as the target, where the disclosed transaction value was over $500 million, and calculated the median and 25th and 75th percentile premia (discount) of 6.0%, (2.2%) and 11.6% relative to the target company’s stock price at its 52-week high prior to the announcement of the applicable transaction.
Applied a range of premia (discount) of (2.2%) to 11.6%
Closing price of $136.64 per share as of March 21, 2019 (date of its 52-week high prior to the announcement of the transaction)
Calculated a range of implied equity values per share of $134 to $152, as rounded to the nearest dollar.
Implied a range of exchange ratios of 0.829x to 0.946x
Selected Companies Analysis
Tableau lists the following companies in it’s 10K as competitors, but also talks generally about providers of SaaS-based or cloud-based analytics product.
Goldman Sachs reviewed and compared following publicly traded corporations in the software industry.
Goldman Sachs calculated and compared the enterprise value of each selected company as a multiple of its estimated growth-adjusted calendar year 2020 revenue based on the Forecasts for Tableau and IBES estimates and Bloomberg data.
Selected Transactions Analysis
Goldman Sachs analyzed certain information relating to the following transactions in the software industry announced between October 2011 and June 2019.
GS calculated and compared the transaction enterprise value, which is (x) the per share consideration paid multiplied by the number of FDSO of the target company plus (y) the net debt of the target company, in each case based on data obtained from public filings.
Applied multiple of the target’s estimated NTM revenue from the announcement date of the transaction based on Institutional Broker’s Estimate System consensus estimates and Wall Street Research.
Applied an illustrative range of NTM transaction revenue multiples of 7.0x to 10.0x to the NTM revenue of Tableau reflected in the Forecasts
Calculated a range of equity values of $121 to $167, rounded to the nearest dollar, which implied a range of exchange ratios of 0.748x to 1.038x based on the closing price of $161.27 of Salesforce as of June 7, 2019
Applied multiple of the target’s estimated growth-adjusted NTM revenue from the announcement date of the transaction based on IBES consensus estimates and Wall Street Research.
Applied a range of growth-adjusted NTM transaction revenue multiples of 0.30x to 0.50x to the NTM revenue of Tableau reflected in the Forecasts
Calculated a range of implied equity values of $105 to $167, as rounded to the nearest dollar, which implied a range of exchange ratios of 0.651x to 1.038x
Present Value of Future Share Price Analysis
GS used the Forecasts for each of the calendar years 2019 to 2021. GS first calculated the implied future enterprise value of Tableau as of March 31, 2019 and as of December 31, 2019 and 2020.
Applied a range of EV to forward revenue multiples of 7.5x to 8.5x to the revenue estimates for Tableau for each of the CY2019 - CY2021
Added estimated net cash as of the relevant year end per the Forecasts to such future enterprise values in order to calculate the implied future equity values
Divided the range of illustrative equity values it derived by the number of FDSO of Tableau, as provided by the management of Tableau
Discounted implied December 31, 2019 and 2020 per share equity values back to March 31, 2019 using a discount rate of 8.5%, reflecting an estimate of Tableau’s cost of equity
This analysis resulted in a range of implied present values of $121 to $176 per share, as rounded to the nearest dollar.
Background of the Mergers
December 18, 2018, Benioff and Selipsky met on to discuss various matters in the technology industry generally and, as a follow up to the December 6 meeting, discussed possible ways that the companies could work together in the future. During the course of the conversations, Benioff raised the possibility of a strategic transaction
January 2019, Benioff contacted Selipsky to indicate that Salesforce would like to discuss a potential strategic combination with the Company in more detail
January 24, 2019, BoD directed senior management to vet and recommend a financial advisor to assist in the process
February 14, 2019, Held discussions with three potential financial advisors with expertise in mergers and acquisitions in the technology industry and recommended that the Company retain Goldman Sachs.
GS’ historical relationship with, and knowledge of, the Company (lead underwriter on the Company’s IPO in 2013 and related ongoing services)
Board approved the engagement of GS as financial advisor
BoD reviewed and discussed the Salesforce proposal and ultimately concluded that the $157 price per share contained in the February 12 offer was not compelling enough to warrant further engagement with Salesforce or a pivot away from a commitment to the stand-alone plan. Any offer for a strategic combination would need to be significantly higher to warrant further engagement
February 25, 2019, BoD unanimously concluded that the $170 proposal undervalued the Company, and agreed that additional information exchange and engagement might lead to a compelling proposal. Consensus by the BoD that outreach to any other third parties carried significant risk, especially given the limited number of parties able or positioned to engage in such a transaction and related leak exposure to such outreach, and was not advisable at such time
March 12, 2019, Given the early stages of engagement to date, the limited due diligence provided, the limited universe of potential participants that might be able and willing to conduct a transaction of relevant size and scope at this time, the fact that the Company was not “for sale” and that Salesforce had still not made a compelling proposal—additional outreach to other parties at this time was not advisable
March 13, 2019, Declined to include any additional third party in discussions at this time because of, belief it could jeopardize confidentiality, speed and certainty of any potential transaction with Salesforce, cause significant harm to the Company and its ongoing businesses and negatively affect the ability to execute on its stand-alone strategy if there were any leaks of a potential transaction, be highly unlikely to produce alternative value or leverage with Salesforce and risk a situation where Salesforce terminated strategic discussions
March 21, 2019 BoD focused on the need to strategically balance a proactive and expedited approach to the current strategic discussions, weighed against the need to focus on the commitment to its stand-alone plan relative to competitive dynamics in the general marketplace in the short and medium term
March 26, 2019, Tableau reached out to Salesforce to explore benchmarking for a potential transaction value at a price in the range of the low $180s
April 7, 2019, Discussed the exchange ratio and stock price movements across the timeline of engagement with Salesforce (over the prior 10-day and 30-day trading period). Tableau agreed to hold firm on its position regarding transaction valuation given the relative volatility in the market
May 15, 2019, Benioff contacted Selipsky to discuss the revised proposal on value in light of recent stock price volatility. Selipsky reiterated the commitment to value, but agreed to revisit the discussion
May 16, 2019, In order to bridge the market volatility issue, but align on value, a floating value range of $175 to $180 per share could be agreed, with the exchange ratio to be fixed based on the 5-day VWAP
Salesforce proposed a price per share between $175.00 and $180.00. The transaction consideration would be all-stock and the exchange ratio would be fixed based on the 5-day VWAP as determined prior to signing
May 18, 2019, Enter into an exclusivity agreement with an exclusivity period lasting through June 4, 2019. BoD also discussed Salesforce’s desire to have certain members of the Company’s management team continue for a period post-closing in a role at the combined company, which would require employment letters
June 4, 2019, Tableau and Salesforce executed an amendment to the Exclusivity Agreement, which extended the exclusivity period to June 11, 2019
June 6, 2019, Salesforce expressed concerns around the recent market volatility and the executives of both companies discussed the possibility of announcing the transaction on Monday, June 10
June 6, 2019, Salesforce sent Tableau a revised written proposal based on a fixed exchange ratio of 1.0671, implying a price of $170 per share at the one-day closing price of Salesforce’s common stock. The revised proposal noted that the counterproposal took into account the changes in market conditions since May 16 and the competitive landscape.
June 7, 2019, Tableau objected to the revised offer being outside the price range (when calculated based on a 5-day VWAP) that formed the basis for the transaction discussions and exclusivity period
Following further discussion Salesforce agreed to revise its most recent proposal to reflect an offer price of $175 per share, but maintained that the resulting exchange ratio should be based on one-day closing spot prices, while Tableau maintained that it expected the exchange ratio to be based on the 5-day VWAP because of the recent volatility in the market
June 7, 2019, Tableau and Salesforce, along with GS and BAML, discussed various constructs to close the valuation gap
Proposal to fix the transaction exchange ratio based on the trailing three-day volume weighted average trading share price of Salesforce common stock
Based upon a $175 per share price and Salesforce’s three-day volume weighted average share price of $158.64, the parties agreed on an exchange ratio of 1.103
June 8, 2019, Tableau Board authorized management to accept the proposed compromises and to finalize the transaction agreements
Termination fee equal to 3.3% of the Company’s equity value