On Friday, Cantor Fitzgerald adjusted its stance on PowerSchool Holdings Inc. (NYSE:PWSC), downgrading the stock from Overweight to Neutral and revising its price target to $22.80 from the previous $25.00. This change comes in response to the announcement that Bain Capital has agreed to purchase the K-12 software provider for approximately $5.6 billion, equating to $22.80 per share.
The acquisition news follows earlier May speculations that Bain Capital was considering a bid for PowerSchool. According to the company, the transaction does not require the approval of other PowerSchool stockholders, as those holding a majority of the shares have already given their written consent.
Analysts had anticipated that the final purchase price might reach or surpass $25 per share. The difference between the expected price and the agreed acquisition price is attributed to the treatment of the tax receivable agreement (TRA) liability. Current shareholders are expected to shoulder the full cost of the TRA, which is calculated at $2 per share.
The precedent for the TRA's influence on the final purchase price can be seen in Vista Equity's acquisition of Pluralsight (NASDAQ:PS), where the offer was increased by 11% to account for the TRA. However, with the majority of stockholders already in agreement, the options available to the remaining shareholders remain uncertain.
With the likelihood of the acquisition proceeding, Cantor Fitzgerald has downgraded PowerSchool shares to reflect the agreed-upon price. The deal is anticipated to be finalized in the second half of 2024.
In other recent news, PowerSchool Holdings, Inc. is set to be acquired by Bain Capital in a deal valued at $5.6 billion. This development follows PowerSchool's consistent financial performance, with Q1 revenue reported at $185.0m, slightly above consensus, and adjusted EBITDA exceeding expectations by 6.2%. Analysts from firms such as RBC (TSX:RY) Capital and UBS have updated their outlooks on the company, with price targets ranging from $20.00 to $25.00.
The company has also been integrating AI capabilities into its product offerings, closing deals worth approximately $400K and building a pipeline nearing $10M. Despite concerns about the company's reliance on ESSR funding and questions about its accounting practices, analysts remain optimistic about PowerSchool's growth potential.
These recent developments include a potential acquisition by Bain Capital, which could bring additional resources and strategic expertise to the company. This news, along with PowerSchool's consistent financial performance and innovative strategies, are key points of interest for investors.
InvestingPro Insights
The recent downgrade of PowerSchool Holdings Inc. (NYSE:PWSC) by Cantor Fitzgerald to a Neutral position, coupled with a price target revision, reflects the market's reaction to the acquisition by Bain Capital. To further understand the financial health and future prospects of PowerSchool, InvestingPro offers some insights that could be valuable for investors.
InvestingPro Data indicates that PowerSchool has a market capitalization of $4.56 billion and is currently trading at a high revenue valuation multiple. With revenue growth in the last twelve months as of Q1 2024 at 12.9%, and a more impressive quarterly growth rate of 16.0%, the company shows promising top-line expansion. However, the P/E ratio stands at -94.56, suggesting that investors are paying a premium for a company that has not been profitable over the last twelve months.
Among the InvestingPro Tips, it's noteworthy that analysts predict the company will be profitable this year, which could be a potential turning point for PowerSchool. Additionally, despite the absence of dividend payments, PowerSchool has seen a strong return over the last month, with a 34.44% increase in its price total return.
To explore more insights and tips, including the 6 additional analyst tips not covered here, investors are encouraged to visit InvestingPro at https://www.investing.com/pro/PWSC. Don't forget to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.