ServiceMax SPACs

ServiceMax SPACs

This morning, ServiceMax and Pathfinder Acquisition Corp announced a $1.4B merger.

ServiceMax was founded in 2007 and raised funding from a few of venture capital's top names including Meritech, Emergence, and Kleiner Perkins.

GE acquired ServiceMax in 2016 to expand its Predix platform for $915M. Just 2 years later, GE and SilverLake agreed to carve ServiceMax out of GE in a deal that gave SilverLake a majority stake with GE retaining 10%.

ServiceMax is a respectable business, but with slow growth. In FY 2021, they grew by just 8% with a target of 17% for FY 2022. Total revenues in 2020 FY were $103M and $111M in 2021. This year, ServiceMax is on pace for $130M.

As you might expect in a business with a heavy service component, gross margins are lower than a typical SaaS business. Last year, they were 56% for the entire business but the SaaS product was a respectable 70%

Gross margins are often a sticking point in private equity, but they don't always tell the whole story.

As part of this combination, ServiceMax has also agreed to buy LiquidFrameworks for $145M or 6.6x TTM revenues. According to the investor presentation, LF has 90% recurring revenue, 20% YoY growth, and positive cash flow.

Lastly, the deal values ServiceMax at 12.6x TTM revenues and 10.8x NTM revenues. The slow-growing nature of the business hampered the valuation here.

C3.ai recently IPO'd at ~30x TTM revenues as a business with similar revenues and a heavy services component (70% GM) but was growing 70-80% YoY.

As far as SPACs go, this deal makes a lot of sense. ServiceMax is a solid, though not a spectacular business that the private markets were not going to fund due to the growth and GM story. Now, with longer-term public shareholders, the business can focus on growing without the expectations of venture or private equity.

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