Nearly two and a half years after its initial public offering, Duck Creek Technologies Inc. (DCT, Financial) announced on Monday it is being taken private by Vista Equity Partners for $2.6 billion.
According to the terms of the all-cash agreement, Vista will pay $19 per share for the Boston-based company, a 46% premium to its closing price of $12.99 on Friday.
Headquartered in Austin, Texas, the private equity firm is known for focusing on enterprise software, data and technology-enabled companies. Duck Creek, which develops enterprise software for the property and casualty insurance industry, fits into this category with its cloud solutions for providers of all sizes.
In a statement, Monti Saroya, senior managing director and co-head of Vista’s flagship fund, commented on the company’s technology.
“Duck Creek is playing an outsized role in accelerating cloud strategies and unlocking all the advantages they provide this crucial sector of today’s economy,” he said. “Duck Creek’s modern cloud architecture and demonstrated market traction position it to define the next generation of mission-critical technology for P&C insurance.”
Duck Creek CEO Michael Jackowski also expressed his excitement for the acquisition, which he called “a testament to the value of the Duck Creek platform, the success of our strategy and the strength of our incredible team.”
“Following a deliberate and thoughtful process, the Board approved this transaction which delivers a great outcome for Duck Creek’s shareholders, providing them a certain and substantial cash value at an attractive premium,” he said. “Duck Creek is proud to have pioneered cloud-based mission-critical systems for the P&C insurance industry to deliver a best-in-class customer experience. We are excited to enter the next chapter for Duck Creek in partnership with Vista Equity Partners to continue supporting P&C insurance carriers’ move to the cloud.”
Following the close of the deal, which is expected to occur during the second quarter of this year pending regulatory approval, Duck Creek will become private.
Valuation
While shares of Duck Creek soared 46.65% to $19.05 on the news, the stock is far below the heights it once reached. After its public debut in August of 2020 at $27 per share, the stock gradually rose to a high of around $59 in February of 2021.
Then, in 2022, the company saw it shares tumble nearly 60% as investors began to avoid formerly high-growth areas in the wake of rampant inflation and rising interest rates.
Duck Creek has a $2.53 billion market cap; on Monday, its shares were trading with a forward price-earnings ratio of 172.5, a price-book ratio of 3.46 and a price-sales ratio of 8.14.
While there is not enough historical data to calculate a GF Value, the company does have a GF Score of 40 out of 100. Although GuruFocus research found this score typically indicates the company has poor future performance potential, due to the lack of a value and momentum rank, the score does not accurately reflect its full potential. It did, however, receive high ratings for financial strength and growth as well as a low profitability rank.
Quarterly results
On Jan. 5, Duck Creek reported its financials for the fiscal first quarter of 2023.
For the three months ended Nov. 30, the company recorded revenue of $80.6 million, which grew 10% from the prior-year quarter. It noted subscription revenue increased 23% to $43.8 million, while professional services sales decreased 6% to $27.9 million. Maintenance and support revenue gained 14% to $7.2 million.
Duck Creek also saw a net loss of $5.2 million, which was down from net income of $0.7 million a year ago.
In a statement, Jackowski commented on the strong start to the year.
“We are encouraged by our recent performance and the opportunity ahead of us for the remainder of fiscal 2023,” he said. “We are mindful of how fluid the macro environment is, but we are confident in Duck Creek’s ability to drive continued, profitable growth. Our recent announcement to acquire Imburse Payments is another proof point that Duck Creek is a well-positioned industry leader, enabling carriers’ digital transformation goals with modern tools.”
Financial strength and profitability
GuruFocus rated Duck Creek’s financial strength 8 out of 10 on the back of a robust Altman Z-Score of 10.78, which indicates the company is in good standing.
The company’s profitability did not fare as well, scoring a 3 out of 10 rating. Although the operating margin is expanding, the returns on equity, assets and capital are negative and underperform over half of its competitors. Further, the Piotroski F-Score of 5 out of 9 indicates conditions are typical for a stable company.
Guru investors
Of the gurus invested in Duck Creek Technologies as of the third quarter of 2022, Jim Simons (Trades, Portfolio)’ Renaissance Technologies has the largest holding with 0.23% of its outstanding shares. For the period, 13F filings show Paul Tudor Jones (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Tom Gayner (Trades, Portfolio) and Baillie Gifford (Trades, Portfolio) also have positions in the stock.
