The 2024 IPO season is just around the corner, but until those S-1 filings drop, we have private equity M&A to keep us busy. This week, Everbridge announced that it had agreed to be taken private by Thoma Bravo for $1.5 billion in an all-cash transaction – a roughly 50% premium on its market cap before the deal was announced.
Understanding Exit Prices for Technology Businesses
The Everbridge deal is good fodder for understanding exit prices for technology businesses today. Over the past few years, the company has gone from being a fast-growing software business to a slower-growing but more cash-generative entity, so its exit price has a few lessons for founders.
Everbridge’s Market and Growth
Everbridge helps governments and enterprises from across the industrial spectrum respond to emergency situations, and it operates in a market that could prove fertile provided global political and meteorological instability continue to ratchet higher. Lately, however, its growth pace has rapidly decelerated.
Revenue Results Over the Past Several Years
| Year | Revenue Growth |
| — | — |
| 2020 | 35% |
| 2021 | 36% |
| 2022 | 17% |
| Q3 2023 | Forecasted 4% |
As you can see, the company’s revenue growth has been declining over the past few years. In 2020 and 2021, Everbridge reported impressive revenue growth of 35% and 36%, respectively. However, in 2022, its growth slowed down to 17%. And in Q3 2023, the company forecasted a mere 4% increase in revenue.
Adjusted Net Income and EBITDA
Despite the decline in revenue growth, Everbridge has made strides toward improving its profitability in recent quarters. Adjusted net income increased to $20.2 million in Q3 2023 from $12.3 million a year ago, and its adjusted EBITDA expanded to $23.7 million from $15.2 million in the same period.
Cash Generation and Profitability
Everbridge has managed to switch to improving its profitability and cash generation. The following slide from its Q3 2023 investor deck details the historical data:
| Year | Adjusted Net Income | Adjusted EBITDA |
| — | — | — |
| 2020 | $12.1 million | $14.5 million |
| 2021 | $15.6 million | $18.2 million |
| 2022 | $17.9 million | $20.5 million |
| Q3 2023 | $20.2 million | $23.7 million |
The Impact of Declining Revenue Growth on Exit Prices
The decline in revenue growth has a significant impact on exit prices for technology businesses. A slower-growing company is less attractive to potential buyers, which can result in lower exit prices.
Lessons from the Everbridge Deal
The Everbridge deal has some important lessons for founders and investors:
- Revenue growth matters: While profitability and cash generation are essential, revenue growth is still a critical factor in determining exit prices.
- Declining revenue growth can be detrimental: A slower-growing company is less attractive to potential buyers, which can result in lower exit prices.
- Focus on long-term value creation: Founders should focus on creating long-term value for their companies, rather than prioritizing short-term gains.
Conclusion
The Everbridge deal provides valuable insights into the impact of declining revenue growth on exit prices for technology businesses. While profitability and cash generation are essential, revenue growth remains a critical factor in determining exit prices. Founders should focus on creating long-term value for their companies, rather than prioritizing short-term gains.
Related Topics
- EC Cloud and Enterprise Infrastructure: The intersection of cloud computing and enterprise infrastructure.
- EC Enterprise Applications: Software applications designed for use by organizations.
- EC Market Analysis: An examination of the market forces that influence a company’s performance.
- Enterprise: Companies that operate on a large scale, often with global reach.
- EverBridge: A software company that provides emergency response solutions.
- Startup Valuations: The process of determining the value of a startup company.
About the Author
Alex Wilhelm is a senior reporter for TechCrunch, covering the markets, venture capital, and startups. He is also the founding host of TechCrunch’s Webby Award-winning podcast, Equity.
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