Bazaarvoice Inc BV made two announcements on Nov. 27 that sent its shares soaring by more than 13 percent. The company reported its fiscal year second quarter results and separately announced a definitive agreement to be acquired by investment firm Marlin Equity Partners for $5.50 per share in cash, for a total transaction value of about $521 million.
The Analyst
B. Riley FBR analyst Kevin Liu reviewed these twin announcements in a Tuesday note. Liu downgraded Bazaarvoice from Buy to Neutral and lowered the price target from $6 to $5.50 based on the agreed-upon deal price.
B. Riley also removed Bazaarvoice from its Alpha Generators list.
The Thesis
Bazaarvoice's quarterly results were ahead of guidance and consensus estimates, Liu said. (See Liu's track record here.)
SaaS and advertising revenues exceeded Liu's estimates, he said.
The purchase price offered by Marlin Equity represents a 14.5-percent premium to the closing price of the shares prior to the announcement, and an 18-percent premium to the average closing price over the past 30 calendar days, the analyst said.
While the deal is not subject to financing conditions, it's subject to customary closing conditions and is expected to close in the first quarter of calendar 2018, Liu said. The break-up fee due to Marlin Equity is $18.3 million if Bazaarvoice terminates the agreement, Liu said.
The premium paid could have been higher due to signs of fundamental improvement over the past couple of quarters, the analyst said.That said, given the longtime M&A chatter around the company and Chairman Tom Meredith's claim that the sale was a result of an "extended and thorough process," the analyst said a superior offer is unlikely to materialize.
B. Riley FBR raised its 2018 and 2019 revenue and EBITDA estimates, although it cautioned investors not to rely too much on its estimates, given limited disclosures concerning the second quarter outperformance and the cancellation of the earnings call.
The Price Action
Bazaarvoice shares are up about 12.37 percent year-to-date.
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