Shares of software firm New Relic (NYSE:NEWR) drove significantly higher on Monday following the announcement of a private equity deal. According to Investor’s Business Daily, Francisco Partners and TPG (NASDAQ:TPG) jointly declared plans to acquire New Relic and take it private. The agreement values the engineering platform at approximately $6.5 billion. NEWR stock gained over 13% in the early afternoon hours.
Per the investment resource, New Relic provides engineers with the tools to plan, build, deploy and run software. TPG Capital co-managing partner Nehal Raj called the software enterprise a “pioneer in the observability market.” Certainly, NEWR stock has been on a run this year even before today’s announcement. With the disclosure, NEWR gained almost 50% of equity value since the January opener.
Under the terms of the agreement, Francisco Partners and TPG will pay $87 a share in cash for the San Francisco-based company, per Bloomberg. That’s a premium of approximately 26% to its 30-day average closing price, per a New Relic statement. Also, the two investment firms are paying about a 30% premium compared to the last 12 months volume-weighted average closing price.
NEWR Stock Is Part of a Growing Trend
Moving forward, New Relic has 45 days to explore for other prospective bids. If none materialize, Investor’s Business Daily reports that the deal could close late this year or early next year.
Fundamentally, NEWR stock represents the latest example of private equity firms pouncing on software acquisitions, writes Bloomberg. Essentially, a significant increase in regulatory scrutiny pushed technology stalwarts to the sidelines for fear of attracting antitrust litigation.
So far this year, global private equity firm Silver Lake and the Canada Pension Plan Investment Board agreed to take experience management software firm Qualtrics private. The buyout reached a valuation of $12.5 billion, making it the biggest software take-private deal of the year so far. From data compiled by Bloomberg, New Relic will be the second-largest deal for the sector.
For those that invested in NEWR stock early in the game, the return has been positive but probably not great by tech standards. Since NEWR’s first public close in December 2014, shares gained over 147% on a weekly average price basis. However, data from Google Finance shows that the security lost almost 17% of market value in the trailing five years.
A Last Hurrah
Ending on a high note, New Relic posted quarterly earnings of 43 cents per share on Monday, according to Zacks Equity Research. This tally beat Wall Street’s consensus estimate of 31 cents per share. It also compares very favorably to a loss of 26 cents from one year ago. Also for good measure, revenue of $242.63 million beat analysts’ target by 1.46%.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
