by Jim Lundy
Box announced this week that it plans to take 500,000,000 in investment from KKR in a move designed to thwart an activist investor Starboard Value LP. Starboard was pushing for a sale. The deal is a win for Starboard as it gets a favored board member placed as Chairman and a win for KKR, which gets convertible preferred stock. This blog analyzes some of the aspects of the deal.
Why Is Box Taking $500M from KKR?
While some consider it a lifeline the Box deal to have KKR invest is really a defensive move to prevent Starboard (which owns 7.5% of Box) from trying to force a sale of the company. The cloud content management market is evolving to be part of a digital work hub, which puts pressure on best of breed providers such as Box. While Box was already planning to dive into digital transaction management before this investment, the money from KKR will be used to invest in new markets vs. being used solely to buy back stock.
There is always a catch with a deal like this, and there are two things that happened in this particular case. The investment that KKR is making allows them to purchase preferred stock options that will probably give them stronger voting rights regarding future transactions that require stockholder voting. The second thing involves the new Chairman of Box.
Who is Bethany Mayer, the New Chairman at Box?
Bethany Mayer is an industry veteran of Silicon Valley and currently an executive partner at Siris Capital, which is known for its role in taking companies private. Bethany joined the board at Box last year as part of a settlement with Starboard.
Will Box go private? What does the latest round of investment mean for the company?
Who Is Siris Capital?
Siris Capital is a private equity firm that currently owns majority positions in over 10 companies These include brand names such as Constant Contact , communications provider PGI and digital imaging provider efi.
A Question for Bethany Meyers
The one question we have for Bethany Meyers is where her loyalties lie. She works for a private equity firm, which makes money by buying and selling technology companies. Siris is known for placing executives at companies with the intention of positioning the firm for a sale.
All Signs Point to Box Going Private
To me, all signs seem to point to Box going private at some point. This is often a way for investors to monetize a company such as Box by bringing in a new management team, figuring out a revenue growth model, and then selling the company for 2-6x revenues. For that to happen, Box first needs to go private.
Prediction: By YE 2022, Box will go private, as a defensive move to prevent a hostile takeover from outside investors.
Bottom Line
Activist Investors are taking an active role at many technology companies to force sales or other financial engineering transactions that benefit them. Software companies will need to take steps to ensure that their stock ownership provides levels of protection to prevent issues like this from occurring with the level of frequency that they have been over the last five years. For Box, we expect them to diversify to become more of a digital work hub provider, in addition to the move into digital transaction management with the pending launch of Box Sign.