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ClearBridge urges Model N to reconsider Vista buyout offer

EditorNatashya Angelica
Published 04/15/2024, 05:28 PM

NEW YORK - ClearBridge Investments, Inc., a significant shareholder in Model N, Inc. (NYSE: NYSE:MODN), has formally addressed the company’s Board of Directors with concerns regarding the proposed acquisition by Vista Equity Partners.

In a letter dated today, ClearBridge, which holds a 6.97% stake in Model N, expressed its belief that the offer from Vista Equity Partners substantially undervalues the company's future prospects and current market position.

The investment firm, managing over $188 billion in global equity assets, urged Model N’s board to remain open to potentially superior offers. ClearBridge highlighted Model N’s strong positioning in the high-value life sciences and high-tech markets, noting the company’s successful transition to a cloud/SaaS subscription model and its potential for long-term revenue and profitability growth.

ClearBridge's portfolio managers, Jeffrey Bailin and Aram Green, emphasized that Model N has executed well on its SaaS transition, adding new logos, and expanding geographically and in product offerings with existing customers, all while significantly increasing margins.

They pointed out that the software company, having completed the bulk of its business model transition, is poised for accelerated performance in the medium term.

The letter mentioned that vertical software businesses typically command high valuations and that the proposed acquisition's multiples are below the average seen in recent private equity deals in the software sector. ClearBridge suggested that Model N, with its unique competitive differentiation and attractive customer base, should warrant a higher valuation.

The investment firm's correspondence with Model N's board is based on its strategies of long-term investment, with a target holding period of three to five years, and a history of investments in the software space serving life science customers.

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ClearBridge's stance is that the company's shareholders should consider the potential long-term value of remaining an independent public entity, as executing on mid-term targets could offer a much higher value.

The letter ends with an offer for further discussion, indicating ClearBridge's active interest in the outcome of the acquisition proposal. This move by ClearBridge Investments signals a critical moment for Model N as it weighs the decision to accept Vista Equity Partners' offer or to explore other options that may better reflect the company's value and future growth potential.

The information is based on a press release statement from ClearBridge Investments.

InvestingPro Insights

As the debate around the acquisition offer for Model N, Inc. (NYSE: MODN) intensifies, the latest data from InvestingPro provides a nuanced picture of the company's financial health and market position. With a market capitalization of approximately 1.17 billion USD, Model N's valuation reflects its standing in the tech and life sciences sectors.

Despite the company not being profitable over the last twelve months, analysts predict a turn towards profitability this year, aligning with ClearBridge's optimism about Model N's future prospects.

An InvestingPro Tip points out that Model N's net income is expected to grow this year, which could be a sign of the company's successful transition to a cloud/SaaS subscription model and improved operational efficiency. On the other hand, 11 analysts have revised their earnings downwards for the upcoming period, suggesting that there may be challenges ahead that could impact the company's performance.

InvestingPro Data shows significant revenue growth over the last twelve months as of Q1 2024, with an 11.92% increase, indicating that Model N's business model transition may be yielding positive results. Additionally, the company has been trading at a high Price / Book multiple of 9.4, highlighting the premium investors are willing to pay for its shares relative to the company's book value. This could be reflective of the unique competitive differentiation and attractive customer base that ClearBridge mentioned.

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For investors seeking a more comprehensive analysis, there are additional InvestingPro Tips available for Model N, which can be found at Investing.com/pro/MODN. These tips provide further insights into the company's stock performance and financial metrics. To access these insights, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 12 additional InvestingPro Tips currently listed for Model N, providing valuable information for shareholders and potential investors to consider in light of the proposed acquisition.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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