Adaptive Insights was set to go public on Thursday, the latest cloud-based technology company poised to cash in.
But a funny thing happened on Adaptive’s way to an initial public offering: Enterprise-software company Workday (ticker: WDAY) agreed on Monday to buy the company for about $1.55 billion in cash to strengthen its financial-planning products.
Workday will acquire all shares outstanding of Adaptive, including the assumption of $150 million of unvested equity issued to Adaptive employees. The transaction is expected to close in the fall.
Workday shares are down 0.2% to $123.65 in midday trading.
The last-minute acquisition is a vivid illustration of the value of software companies. Last week, Microsoft (MSFT) paid a whopping $7.5 billion for open-source development platform GitHub; a few months earlier, in April, Salesforce.com (CRM) laid out $6.8 billion on software startup Mulesoft.
Indeed, the shares of more than two dozen software-subscription companies worth at least $1 billion–including Salesforce, ServiceNow (NOW), and Zendesk (ZEN)–are up more than 40% so far this year. The S&P 500 Technology Index is up 14%.
What is more, the 50 companies in the Bessemer Venture Partners Cloud Index trade for an average of 7.8 times revenue over the next 12 months, up 27% from a forward sales multiple of 6.1 at the beginning of the year.
Adaptive’s last-minute decision to sell rather than go public isn’t totally shocking, either. Large tech companies are willing to pay a premium for software startups headed for an IPO.
In early 2017, Cisco Systems (CSCO) snapped up AppDynamics, which helps companies monitor application performance, for $3.7 billion, shortly before AppDynamics was to go public.
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