A Few Surprises About the Year’s Biggest Take-Private

Advent International, Bain Capital and Berkshire Partners today announced an agreement to acquire Skillsoft (Nasdaq: SKIL), a Dublin, Ireland-based provider of e-learning and performance support SaaS solutions. The $1.1 billion deal is the year’s largest take-private, and represents a 10.66% premium over yesterday’s closing price.

The buyout firms secured debt financing from Morgan Stanley and Barclays Bank, which consists of a $40 million senior secured revolving facility, a $435 million senior secured term loan and a $240 million senior unsecured interim loan. That equates to a $385 million equity check, presumably split evenly between the three sponsors.

On a conference call for the deal this morning, analysts and shareholders seemed unimpressed by both the price and the opportunity for a counterbid.

CEO Chuck Moran and CFO Tom McDonald argued that Skillsoft’s reasons for going private are numerous: The company is at an inflection point in terms of growth, and the 8% to 10% growth rates they previously projected don’t apply in a recession. When one analyst argued that Skillsoft has a monopoly in its industry and that its earnings would improve as the recession retreats, Moran and McDonald were quick to disagree. “There’s over 1,000 competitors,” Moran said. “Bookings are down from the prior year.”

Analysts and investors didn’t buy that argument, especially once management declined to provide specific proof of the lower bookings. That fact peeved a few shareholders when management admitted that Berkshire Partners, Bain Capital and Advent International did have access to those numbers. Further, management refused to elaborate on whether the decline was recession-related or permanent.

More than one large shareholder used the Q&A portion of the call to note their dissatisfaction that management did not consult with them on the deal. Ben Andrews at Wanger Asset Management accused: “Even though your largest shareholder has been an investor with you for some time and gone through a fair bit of turmoil as you grew the company?” Ouch. Andrews sternly asked Moran, “Would you mind coming to see me, Chuck?” (For the record, Chuck answered that he’d be happy to.)

Robert Maina of CRM LLC said, “I just want to make a statement here. … As a shareholder, we’ve been here I think among the longest if not the longest, so we really would appreciate some more information before proceeding with the decision.”

The company, which used Credit Suisse as its advisor, tested the market for further bids, but had to adhere to Irish M&A laws which state a company cannot be in serious discussions with more than one company at a time.

Another point of question included the unusual go-shop. The period for soliciting outside buyers is just three weeks long; they can sometimes last three months. That short window, combined with Irish exclusivity rules, means if there are any interested parties out there, they need to get a bid ready, by yesterday.

Skillsoft’s CEO and CFO were pleased to even get a three week go-shop. They said if a bidder expresses serious interest within the three weeks, the diligence process can last for longer than that short time frame.

Management does not have employment agreements with their new buyout owners or equity in the new entity. Moran said, “(The buyout firms) have certainly said that they would like us to say, but there’s nothing in writing that secures that.”

So what, then, do Berkshire, Bain and Advent bring to the table? Basically, money, (“large investment capacity”), management said. “They have a very good track record of working with management teams in the software services space,” Moran said.

John McPeake, an analyst with Alger, asked about the return multiple which Berkshire, Advent and Bain baked into their purchase price. Here was part of the conversation:

Moran” “I think that their view is one where they look to grow the business.”

McPeake: “Not to sell it in the future?” 

Moran: “I can’t speculate what their views are long-term.”

I’m not sure about his understanding of private equity, but I doubt he’s that naïve, making this statement a slightly insulting tap dance.