Through a complex series of financial transactions, supply chain software provider E2open is going to become a publicly traded company with a significant chunk of its ownership in the hands of a special purpose acquisition company.
That SPAC is CC Neuberger Holdings 1, a joint entity put together by the Wall Street firm of Neuberger Berman and CC Capital. CC Neuberger Holdings 1 had an IPO earlier this year to raise money for acquisitions that could lead to deals like it is doing with E2open. That IPO was what is known as a “blank check” IPO, in which funds are raised from investors with plans to use them profitably down the line; the managers at the time of the IPO do not have firm acquisition targets that they disclose to investors.
CC Neuberger Holdings 1 did become a public company through the IPO and now it will be transformed into E2open Parent Holdings. (There is also a CC Neuberger Holdings 2 that is not impacted by this transaction.) The previous New York Stock Exchange symbol for CC Neuberger Holdings 1 was PCPL. The newly traded entity will be ETWO.
In an audio presentation to investors, Chinh Chu, the founder and CEO of CC Capital, said the company seeks out investing in the “highest quality companies with high barriers to entry and protected on the downside, with an asymmetric upside.” “I’m pleased to say E2open fits all those characteristics,” he said.
In a presentation on the company’s financials, E2open CFO Jarett Janik said the company’s estimated revenue in the financial year that closes in February is expected to be $335 million, up from $305 million a year before. The estimate for fiscal 2022 is $367 million.
The percent of revenue that is subscription-based, always a key metric for a SaaS company, was 80% in fiscal 2020 and is expected to climb to 83% by fiscal 2022.
The gross margin for the company is in the 72% to 73% range.
But both Chu and E2open CEO Michael Farlekas — who will remain as CEO of the newly public company — said E2open has significant “white space” to grow, which it defined as unrealized market penetration. For example, the company’s enterprise value for the current fiscal year is seven times revenue while peer SaaS company Descartes has a valuation of 12 times revenue. When it comes to EBITDA, the gap is greater. E2’s enterprise value is 21.3 times EBITDA while Descartes’ is 29.2 times and Kinaxis’ is 59.1 times.
The structure of the deal is complicated. The enterprise value of E2 in the transactions is $2.57 billion. Cash in the deal is $1.134 billion, with existing E2 owners, including investment firm Insight Partners, getting $638 million. But those owners also will own 38% of the newly publicly traded company.
The other splits on the ownership will be 20% to the existing shareholders of CC Neuberger Holdings I; a complicated arrangement called a forward purchase agreement, 10%; the founders of CC Neuberger Holdings I, 7%; and 25% to what is known as PIPE, or private investment public equity. Those are existing shareholders in the CC Neuberger SPAC who will acquire the balance of the newly renamed entity with E2 as its primary asset.
Chu described the supply chain software offerings of E2 as being a “mission-critical embedded solution.” “The management of the supply chain is very dependent on what E2 provides in data and analytics,” he said on the audio presentation.
Chu said E2 has not been aggressive in its pricing the past few years “so the pricing opportunities for this … software we think is terrific over the next four to five years.”
There also are significant opportunities for “tuck-in” acquisitions, where the acquired company’s activities are merged into those of the parent for growth.
Farlekas said on the call that E2 is five times larger than it was in 2015, when the company was taken private. The company has approximately 1,000 total customers operating through its principal platform E2net.
The company’s top 100 customers average an annual subscription spend of approximately $1.5 million, Farlekas said. E2 also has 125 customers that have $10 billion or more in revenue.
In the announcement of the acquisition and the move to becoming a public company, Farlekas offered up what might be considered a mission statement. “Our software platform, powered by real-time data, enables our customers to orchestrate more agile and resilient supply chains, and we are excited about the opportunity to accelerate growth going forward,” he said.
In discussing the “white space” available to E2, Chu estimated that only 15% of the potential market is utilizing the type of software offered by the company. “It’s largely under-penetrated,” he said.