Investing.com - Smartsheet Inc (NYSE:SMAR), the US-based creator of workplace collaboration software valued at $6.3 billion, lifted 5.5% during Thursday's regular session after reports that the company has engaged investment banking consultants following acquisition overtures from private equity firms, according to Reuters.
The Bellevue, Washington-based company is collaborating with Qatalyst Partners to evaluate propositions from private equity entities, according to these sources. Smartsheet has not yet determined if it will initiate a sale process, and it may choose to remain independent, they added.
The sources spoke on condition of anonymity due to the sensitive nature of the situation. Both Smartsheet and Qatalyst declined to comment.
Private equity firms have been aggressively seeking deals in industries such as technology and services this year, following a period of inactivity for most of 2023 due to high interest rates that made leveraged buyouts more difficult to finance. The first half of the year saw a 41% jump in private equity deal volumes, propelled by several take-private deals.
Smartsheet's software provides organizations with a single platform to manage, monitor, and automate their workflows, offering a broader range of features and capabilities than Microsoft (NASDAQ:MSFT)'s Excel. The company caters primarily to large corporate clients with complex operations, such as Pfizer Inc (NYSE:PFE), Cisco Systems Inc (NASDAQ:CSCO), and American Airlines Group (NASDAQ:AAL), and services 85% of Fortune 500 companies, as per its website. Smartsheet's competitors, including Asana Inc (NYSE:ASAN) and Monday .Com Ltd (NASDAQ:MNDY), generally target smaller businesses.
Smartsheet prioritizes growth over immediate profitability, achieving robust sales while incurring losses. However, the company has been progressively reducing these losses, improving its profit margins in the process.
In the fiscal year ending January 31, the company reported a revenue of $904 million, a significant increase from $714 million the previous year, and managed to cut its pre-tax losses from $213 million to $96 million. As of the end of April, the company had $334 million in cash reserves and no debt.
Banks are typically hesitant to lend to companies that consume their cash flow, which can make leveraged buyouts more difficult for private equity firms to finance. As a workaround, some private equity firms have sought financing from so-called shadow banks, investment firms that operate outside the traditional banking sector.
These lenders are not subject to banking regulatory oversight and can provide loans based less on a company's cash flow and more on its generated sales, often referred to as an annual recurring revenue loan.
However, this type of debt carries inherent risks. For instance, private equity firm Vista Equity is reportedly in discussions to relinquish control of its educational software platform, Pluralsight (NASDAQ:PS), to its lenders following a souring of the annual recurring revenue loan it took on after its $3.