Wall Street can be unforgiving and Cision needed more patience and flexibility than investors were willing to give, according to financial analysts that cover the PR software company.
Last week, Cision said it was ending its brief stint as a publicly traded company by selling itself to a Platinum Equity affiliate for $2.74 billion so it can be "less driven by quarterly results," according to an internal letter from Cision CEO Kevin Akeroyd.
Going private means Cision has "more flexibility to make strategic investments to drive powerful innovation and achieve sustainable long-term success," Akeroyd concluded.
When former competitors Cision and Vocus combined under the Cision brand in 2014, Cision promised to "usher in the future of PR and social software." Over time these efforts centered on building out its flagship product, Cision Communications Cloud.
The thesis was that if Cision can bundle its technologies onto a single platform, it would help PR pros do their job and prove their effectiveness. The company could expand into the much larger and faster-growing industries of marketing software and, eventually, digital marketing and data markets.
Fast forward to today, change has come more slowly than anticipated, says Rob Oliver, senior research analyst for software at investment bank Baird. The company’s retreat from the glare of the public markets indicates its struggle to transform a market stuck in its ways.
Cision has had troubles converting more customers to Cision Communications Cloud, Oliver says. He calls the cloud product the "first of its kind" — an all-in-one platform that’s closer to solving attribution than any other PR tech software.
However, he notes that workflow products are notoriously "sticky," retaining most of their clients year-over-year. For PR tech, this means customers are less likely to swap a workflow product they’re used to for an unfamiliar one.
"It’s hard to change behavior," Oliver adds.
Cision admitted that a sluggish pipeline held back growth in its Q2 earnings this year, with organic growth increasing 1.6% and reduced full-year revenue forecasts, which plunged the stock.
Akeroyd said during an analyst earnings call that "a number of the larger business deals are progressing through our pipeline slower than anticipated." He also blamed the U.S.-China trade war.
Based on his own research, Oliver says he still believes the Cision Communications Cloud is the right vision for the company. For clients, it’s the platform they’re asking for. And for Cision, it will ultimately unlock greater revenues by tapping into marketing budgets.
Oliver adds Cision has "really durable businesses," such as press release distribution, media monitoring and journalist and influencer databases. These will prove beneficial assets to its future owners.
Price is everything
Matthew Thornton, an analyst at SunTrust Robinson Humphrey, says Platinum Equity’s price for Cision ($10 per share) was "underwhelming" but reflective of the realities of the market, namely "pricing pressures."
Going private will allow Cision to match the lower rates of its "aggressive competitors," such as Meltwater and Intrado Digital Media, Thornton says. Akeroyd himself once compared Meltwater to the Walmart of PR software: "Everyday low prices."
Stepping out of the public markets will also give Cision more flexibility to pursue acquisitions. This is crucial in a market defined by a "land grab mentality," where private equity-backed PR tech companies continue to consolidate, Thornton says.
Investor reactions to recent Cision acquisitions reflect the tempestuous nature of the public markets. Oliver says the $225 million TrendKite deal "unnerved" investors, adding to the pressures on the PR tech company.
Having to deal with quarterly returns is difficult when you’re trying to reposition the company while, at the same time, continuing to innovate, Oliver says.
"If your chief competitors are private and they have the flexibility to be aggressive on price and M&A, and you’re public and don’t have flexibility, that’s a bit of a hamstring," Thornton says. "You’re hamstrung in your ability to compete. Maybe the right thing for your business might not be consistent with what Wall Street wants you to do."
Andrew Nicholas, an analyst at William Blair, writes in an analyst note that, "Cision will be likely be afforded a ‘longer leash’ with respect to its leverage profile and be able to make additional investments in its C3 platform, continue to integrate recent acquisitions and further enhance its cross and up-sell efforts outside the public company spotlight."
The PR software industry is currently a $4.1 billion industry by one estimate, with a low single-digit growth market. Growth could accelerate as targeting and measurement technology enhances, Thorton posits.
Despite the bullishness of some analysts, most downgraded their stock rating for Cision because they believe it’s unlikely a new bidder will emerge by the time its "go-shop" period ends on November 12.
News of Cision seeking a potential buyer broke in spring 2019, six months ago. If there was an interested party, besides Platinum, it would’ve had ample time to assess Cision’s assets.
"We’d be surprised if a rock was unturned and another suitor emerged," Thorton writes in his note.
If there was one, it’d likely be a marketing cloud, Thornton writes. Or it could be a Cision competitor, such as Meltwater (backed by Vista Credit Partners), Intrado Digital Media (Apollo Global Management) or Kantar (Bain Capital), but all of these would have barriers.
Representatives from Kantar and Intrado declined to comment. Meltwater wasn’t immediately available for comment.
Analysts, such as Oliver and Thornton, believe the deal will ultimately close at the asked-for price of $10 per share, which is roughly where the stock is performing now.
The Platinum Equity affiliate buying Cision is MJ23 UK Acquisition Limited, a company that incorporated last month in England and Wales, according to public documents.
MJ23 is buying Cision through an acquisitive vehicle, Castle Merger Limited, which will cease to exist upon finalization of the deal.
Cision will operate as a Cayman Islands-incorporated entity, according to documents filed to the Securities and Exchange Commission. Today, GTCR only has a 34.01%% stake in the company.