On Monday, Piper Sandler adjusted its stance on PowerSchool Holdings Inc. (NYSE:PWSC) stock, downgrading from Overweight to Neutral and reducing the price target to $22.80 from the previous figure of $24.00.
The revision follows the announcement that PowerSchool has agreed to be acquired by Bain Capital and will transition to a private entity.
The deal, which is expected to be finalized in the second half of 2024, places a valuation on PowerSchool of $5.6 billion. Shareholders are set to receive $22.80 in cash for each share they hold at the closing of the transaction.
This payout is notably a roughly 37% premium over the company's share price from last month, before reports of the potential acquisition surfaced.
The bid from Bain Capital equates to a next twelve months (NTM) enterprise value to sales (EV/S) multiple of 6.9x, based on Piper Sandler's estimates. This is considered a premium compared to recent similar software deals.
The premium is reflected in the closing share price of PowerSchool on June 6, 2024, which was $22.37, closely aligning with the offer price.
The downgrade to Neutral reflects the latest developments and the approaching completion of the acquisition, which will result in PowerSchool Holdings Inc. becoming a privately held company. The adjusted price target of $22.80 aligns with the cash payout to be received by shareholders once the deal concludes.
In other recent news, PowerSchool Holdings Inc. has been the subject of substantial market shifts. The education technology company is expected to be acquired by Bain Capital in a deal valued at $5.6 billion, a transaction anticipated to close in the latter half of 2024.
The acquisition price has been set at $22.80 per share, a figure that has prompted several analyst firms to adjust their ratings on PowerSchool's stock.
Notably, Jefferies, RBC (TSX:RY) Capital, Needham, and Cantor Fitzgerald have downgraded the stock, aligning their price targets with the acquisition price proposed by Bain Capital.
PowerSchool's Q1 revenue was reported at $185.0 million, slightly above consensus, and adjusted EBITDA exceeded expectations by 6.2%.
In addition to these financial highlights, PowerSchool has been integrating AI capabilities into its product offerings, closing deals worth approximately $400,000 and building a pipeline nearing $10 million. These are recent developments for PowerSchool, providing investors with key points of interest.
InvestingPro Insights
As PowerSchool Holdings Inc. (NYSE:PWSC) prepares for its transition to a private entity under Bain Capital's acquisition, recent data from InvestingPro provides a nuanced picture of the company's financial health. Despite analysts revising their earnings downwards for the upcoming period, the company's net income is expected to grow this year. Additionally, PowerSchool's stock has shown a strong return over the last month, with a 24.02% increase, reflecting investor optimism amid acquisition news.
InvestingPro data highlights a market capitalization of $3.73 billion and a high revenue growth rate of 16.0% for the first quarter of 2024, suggesting robust top-line expansion. However, the company's P/E ratio remains negative, indicating that it has not been profitable over the last twelve months. Moreover, with a PEG ratio of 1.5, the stock's future earnings growth may be factored into its current valuation.
For readers looking to delve deeper, InvestingPro offers additional insights and tips for PowerSchool Holdings Inc. at https://www.investing.com/pro/PWSC. To further enhance your investment research, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 11 more InvestingPro Tips available, providing a comprehensive analysis for informed decision-making.
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