Everbridge (EVBG) Case Study
The $1.5bn Take-Private We All Should Have Seen Coming
Howdy OpTrackers,
Earlier this week it was announced that Thoma Bravo will be taking Everbridge (EVBG) private in a transaction that values the company at a ~$1.5bn TEV.
I didn’t call this one in advance, so this isn’t a victory lap, but in hindsight I think the outcome here was obvious and this is a situation where following the key people would have led an investor to the right conclusion if they had taken the time to look (I wish I had!). Below I will walk through the story in chronological order and highlight how I think by following the people investors could have generated substantial alpha.
The Initial Setup
Let’s start with the background and developments that set in motion to executive changes we will ultimately be focused on.
Everbridge is a SaaS company that sells a “critical event management” platform to corporates and governments. This software enables its users to quickly and effectively locate and communicate with employees and other stakeholders in the event of an emergency. For example, if a customer has an office where there is a tornado warning, Everbridge enables that company to mass text/email/call employees at the effected office to let them know not to come into work that day. Or if there is an active shooter reported by the police the customer can quickly notify everyone in the area to stay put and lock their doors etc. The platform has a lot more bells and whistles than that, there is some complications with true SaaS vs. On-Prem and term license products, etc. But that’s the gist.
The company IPO’d in 2016 and grew rapidly through both organic growth and levering up to go on an acquisition spree. “Mass Texting” was the original product and through acquisition the company was able to turn their point solution into a more comprehensive platform. Through the first quarter of 2021, the market absolutely loved this story, as it loved all high growth SaaS businesses at the time.
Like many levered roll-ups, this story eventually goes bad. Everbridge was not spending enough time integrating the acquired assets and unifying the go-to-market motion, which eventually caught up to them and growth fell off a cliff. I don’t have any proof, but I wouldn’t be surprised if the company was mischaracterizing some of their growth via M&A as “organic” as well. Regardless, the company stopped doing M&A, growth fell from 35%+ to 7%, investors got nervous about the leverage, and the stock fell almost 90% from peak to trough.
Turnover In the Executive Ranks
The most important person to this story is Dave Wagner.
In July of 2022, the board of EVBG determined it was time for a change and the CEO who got them into their mess was fired and replaced by Dave Wagner.
Dave started his career and spent 10 years in total at Raytheon and Nortel Networks. We start to get interested in his career when he joins EnTrust in 1996 as Controller. Notably, EnTrust is a software company and during Dave’s tenure it rapidly grows its SaaS business. Dave eventually gets promoted to CFO in 2003. In 2009 the company is acquired by Thoma Bravo. During Thoma Bravo’s ownership, Dave continues to serve as CFO and presumably builds a pretty credible relationship with the guys there as he remains in that position until Thoma Bravo sells EnTrust to Datacard in 2013. And in 2015 Dave Wagner becomes President of the new combined EnTrust Datacard.
In 2016 Dave gets recruited to become the CEO of publicly traded Zix Corporation. And shortly after that, in September of 2017, Zix acquired EnTrust Datacard… small world, ain’t it?
Dave continues as CEO of Zix until December of 2021 when he sells the company to OpenText (OTEX). Overall, it’s a good outcome for shareholders under Dave’s tenure but admittedly not an Hall of Fame type of outcome.
Okay, so that takes us to when he joins Everbridge. And what have we learned about Dave?
He has successfully created value for shareholders in both the public and private company in which he had a C-Suite role
He likely has a very good relationship with the PE firm Thoma Bravo
He is not afraid of leveraging his network and past experience in the context of strategic transactions in his new roles
Changes at Everbridge
Following Dave’s hiring at EVBG, the following changes get made:
The company focuses on organic growth, pauses all M&A, and proves it can grow profitably with HSD growth and expanding Adj. EBITDA margins from 0% to >20% as they integrate the companies previously acquired
Dave hires a bunch of his former coworkers to Everbridge:
Sheila Carpenter gets hired as CIO in October of 2022, she was previously CIO of Zix
Noah Webster gets hired as Chief Legal Officer in January of 2023, he was previously Chief Legal Officer at Zix
John Di Leo gets hired as CRO in February of 2023, he was previously CRO of Zix… are you catching the pattern?
A bunch of other roles are also replaced such as the CMO and CPO, but they don’t have prior ties to Dave
Despite all of these changes and positive momentum in the business, the stock price languishes. On the day Dave took over, the stock was approximately $28/share and at the start of February 2024, the stock was trading at approximately $22/share, or ~10x consensus Fwd EBITDA despite EBITDA growing 20%+.
You’ll Never Guess What Happens Next
So, what’s a CEO who is running a messy turnaround story in the public markets, that is getting no credit for it, and who has a strong relationship with Thoma Bravo whom he has made a lot of money for in the past to do?
Well, I spoiled the ending by telling you upfront, but just a reminder, it was announced earlier this week that EVBG is being taken private by Thoma Bravo. They paid what I think was the minimum (a ~20% premium to the prior close) and I expect they’ll make a ton of money on the deal with only modest growth, a lot of leverage, and a lot of margin expansion. I also expect Dave and his team will get paid far more by Thoma Bravo than they would have been paid by public shareholders.
Conclusion
I think this is an instructive case study for a few reasons.
First, I would argue the above demonstrates yet another example where following key people at public companies can lead to interesting investment theses. It’s worth noting that EVBG was also not a hedge fund hotel prior to the acquisition, so it was something of a unique idea as well.
Second, it highlights again that following people on the long side is not as easy as on the short side in terms of picking your entry point. Bad people running bad companies are going to result in a $0.00 stock price over a long enough period of time pretty reliably, so you just need to manage the cost of borrow. With Everbridge, even if you had a god-like ability to follow people changes and bought EVBG on the day that Dave Wagner was appointed CEO, you would have roughly broken even at the announced deal price. So, even with decent conviction in the end state, you had to pick your entry carefully. But there was plenty of opportunity to earn a ~30% return in <1 year along the way!
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Disclaimer: As always please remember nothing written in this blog should be considered investment advice. You should assume that even though we tried our best that this post is riddled with errors and do your own research/consult a licensed financial advisor before investing any of your own money into any financial security