Tuesday, Model N, Inc. (NYSE: NYSE:MODN) stock experienced a shift in rating as Needham downgraded the company from Buy to Hold. The downgrade comes in the wake of an acquisition announcement by Vista Equity Partners. The private equity firm intends to purchase Model N for approximately $1.25 billion, or around $30 per share, a proposal made public yesterday morning.
Model N initiated the acquisition process in January when its board of directors authorized a financial advisor to engage potential buyers. The current offer from Vista Equity Partners reflects a valuation of 4.0x enterprise value (EV) to sales and 21.2x EV EBITDA based on Needham's fiscal year 2025 estimates for the company.
Needham's analysis suggests that the likelihood of another bidder coming forward is low. The firm considers the transaction valuation to be fair, taking into account Model N's financials, which include mid-single-digit growth and a high-teens adjusted EBITDA margin.
The transition phase for Model N, along with the proposed deal's valuation and market dynamics, are the reasons Needham adjusted its outlook on the stock. The firm anticipates that the acquisition will be finalized as planned in mid-2024. This anticipated closure of the transaction is guiding the current investment rating.
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