DocuSign, the e-signature company, saw a 12% spike in its shares on Friday following reports from the Wall Street Journal stating that the company has enlisted outside advisors to explore a potential sale. This sale could involve either strategic buyers or private-equity firms.
As a matter of policy, a spokesperson for DocuSign declined to comment on market rumors or speculation.
With a current market value of $12.9 billion, DocuSign’s stock has experienced a 14% increase this year. However, this growth falls behind the notable 42% gain of the Nasdaq Composite.
If a leveraged buyout were to occur, even with a modest premium, it would become the largest tech buyout deal in recent months. This deal would likely surpass the $12.5 billion acquisition of market software specialist Qualtrics by Silver Lake and the Canada Pension Investment Board earlier this year. It is worth noting that Cisco’s pending acquisition of Splunk for $28 billion holds the title for the largest tech deal announced in 2023.
By adding a 20% premium to the current stock prices, the potential deal price could reach $15 billion. Such a price would be approximately five times the company’s projected revenue for the fiscal year of January 2024. Additionally, it would equate to around 34 times estimated adjusted profits for fiscal year 2024 and roughly 20 times forward EBITDA (earnings before interest, taxes, depreciation, and amortization).
During the pandemic, DocuSign experienced a surge in demand as offices closed and businesses turned to e-signatures for document signing. Sales growth hit its peak at 49% in the fiscal year of January 2021 but has since decelerated rapidly. Consensus estimates project a growth rate of 9% in the fiscal year of January 2024, followed by 6% growth in FY 2025.
The Impact of the Pandemic on DocuSign Sales
The COVID-19 pandemic has presented challenges for many businesses, including DocuSign. Midway through 2022, the company revised its guidance, leading to a spike in turnover within the sales team. CEO at the time, Dan Springer, acknowledged this issue, stating that management had to devote significant time to recruiting new sales personnel. However, following these developments, the DocuSign board decided to remove Springer from his position. Ultimately, Allan Thygesen, a former senior executive at Google, was appointed as the new chief.
Strong Financial Results Propel DocuSign Shares
DocuSign recently released its financial results for the fiscal third quarter, which ended on October 31st. The company reported a total revenue of $700.4 million, marking a 9% increase compared to the same period last year. This figure surpassed analysts’ expectations of $690 million. On an adjusted basis, the company earned 79 cents per share during the quarter, surpassing Wall Street’s consensus of 63 cents per share, according to FactSet.
Potential Buyers for DocuSign
In the past, rumors have circulated that Microsoft could potentially acquire DocuSign, especially given a strategic partnership announced between the two companies in 2022. However, it appears that private equity firms may be a more suitable buyer.
CFRA analyst Keith Snyder expressed in a research note that private-equity firms are “the only likely interest” for acquiring DocuSign. Snyder explains that the company has encountered a faster-than-expected decline in demand following its impressive performance during the pandemic. Consequently, he suggests that a potential deal with a private equity firm may be the best option for shareholders going forward, as there are limited catalysts driving future growth.