The Deal Room
How a hot market for exits, plus a pandemic, led LLamasoft to a $1.5 billion deal it couldn’t refuse
Razat Gaurav did not go looking for a $1.5 billion exit this year, but the deal announced last week to sell LLamasoft Inc. was just too good to pass up.
The Ann Arbor-based AI-powered supply chain management software company’s agreement to sell to Coupa Inc., a Silicon Valley software company, was driven largely by similar corporate cultures, said Gaurav, the CEO of LLamasoft since 2018. But at the same time, corporate finance and technology experts note that it’s still largely a sellers’ market for companies looking to make their exit, even as the coronavirus pandemic continues to create a topsy-turvy economy.
That’s particularly true for a company like LLamasoft that has leading technology in the supply chain space, something very much in demand due to the pandemic. It means buyers will pay a premium, said Erik Gordon, a clinical assistant professor at the University of Michigan’s Stephen M. Ross School of Business.
“Llamasoft has the leading software in supply chain management. That changed the value of Llamasoft,” said Gordon. “You can get a pretty good price for a lot of companies. A tech company that has a widely adopted, widely respected supply chain solution, you’re not going to buy that without paying a big price.”
To that end, investor Mark Koulogeorge with MK Capital in suburban Chicago last week told Crain’s that his fund invested in the company in 2012 at a valuation of $20 million, only to see LLamasoft sell for $1.5 billion.
Indeed, Coupa (NASDAQ: COUP) investors appeared to notice the $1.5 billion price tag and went on a brief selloff of the company’s stock, which tumbled more than 8.5 percent on the day the deal was announced. The stock did bounce back and climbed higher in the ensuing days.
A stock fall is not uncommon on the day of an acquisition, noted Gordon.
“Because there’s always the fear that you overpaid,” he said.
For his part, Gaurav declined to comment on Coupa’s stock price, saying he believes the acquisition is “a good deal for both sides,” noting that 60 percent of Llamasoft’s employees are also shareholders.
“It’s a great outcome for all the hard work and innovations that they’ve worked on,” said Gaurav, 47. “For Coupa, look, this is a fantastic asset, the organization and the customer base that they’re buying into. With the tremendous potential to unravel all kinds of new capabilities to drive and accelerate growth.”
While Gaurav said he figured some sort of exit was on the table further down the road, he hardly foresaw it happening in 2020, especially once COVID-19 hit. But the “synergistic opportunities” with Coupa made for an ideal opportunity, he said.
Particularly culturally, and with the two company’s workforces.
“So that cultural fit, ultimately was really what made us really comfortable that this can be a great go-forward combination, and will result in a lot of success,” Gaurav said.
LLamsaoft has about 650 employees total, with about 250 based in the Ann Arbor area, he said.
While not itself a household name outside its sector and the local technology community, LLamasoft counts a broad swath of major multinational corporations as users of its software.
They include General Motors Co., Home Depot Inc., and Nestle SA.
LLamasoft had been majority-owned by San Francisco private equity firm TPG Capital since May of 2017.
The company now exists as a business unit of Coupa, which did not respond to a request for comment from Crain’s. Gaurav said that organizationally, he expects LLamasoft to be rolled into Coupa’s operations fairly quickly. He expects LLamasoft branding to remain in place for the foreseeable future, given the goodwill it has within the supply chain sector.
Recent data from Pitchbook, a data company focused on the private equity and venture capital sectors, shows that across the county exits have picked up considerably in the second half of 2020. The third quarter saw a “massive uptick” with $103.9 billion raised from 185 total exits. Those figures represent a quarter-on-quarter increase of 292.5 percent and 7.6 percent, respectively, according to the third-quarter report from Pitchbook.
Initial public offerings in the third quarter pushed exit value to its second-highest quarterly total behind only the second quarter of 2019 when both Lyft and Uber debuted on the public markets.
Helping drive growth for exits is increasingly a smorgasbord of offerings that companies like LLamasoft can explore.
While traditional options like a financial or strategic sale are very much still on offer — as are initial public offerings — companies also have some quicker options.
United Wholesale Mortgage in Pontiac is set to go public by the end of the year by merging with an already-public special purpose acquisition corporation, or SPAC.
Increased options such as SPACs can drive exit valuations higher, as sellers have leverage in the negotiations, sources noted.
“I think it’s going to continue to be a good time (to exit) … for tech companies in particular that can have strategic value to somebody, they’re going to have value,” said Chris Rizik, CEO and fund manager of Rennaisance Venture Capital in Ann Arbor. “And the fact that they have more exit opportunities. There’s going to be competing exit opportunities that will drive the price to high levels.”
Other options for an exit were discussed for LLamasoft, said Gaurav, but those options were more in the context of years down the road.
“We did evaluate all of the options,” he said. “Like I said, we weren’t evaluating an exit. So to Coupa’s credit, they really inspired us to think in a certain direction.”