(Bloomberg) -- A large shareholder in Avalara Inc. said it plans to vote against a proposed $8.2 billion takeover by private equity firm Vista Equity Partners, arguing the sale process was flawed, poorly timed and the resulting price undervalues the tax-software company.
Altair US, which owns a 1% stake in Avalara, argued in a letter to shareholders Thursday that investors would be better served if the company remained a standalone entity. Richard Bailey, Altair managing director, said he was “disappointed” the board would “throw in the towel” and sell the rapidly growing business after facing modest headwinds and at a time of great market volatility.
“If the company is to be sold, it should be sold from a position of strength, in a robust financing market and only after a well-run, competitive process. This is not that time,” Bailey said in the letter, a copy of which was reviewed by Bloomberg.
Vista agreed to purchase Seattle-based Avalara last month for $93.50 a share in cash, a 27% premium over where its shares closed on July 6, the last trading day before news of a potential transaction emerged. Bailey said he estimates a “fair deal” for Alvara would be priced well over $110 a share.
A representative for Vista declined to comment, while a spokesperson for Avalara didn’t immediately respond to requests for comment.
The transaction is part of a wave of private equity deals in recent months for technology companies, which have seen their valuations plummet this year amid a broader market selloff. Avalara’s cloud-based services help businesses maintain tax compliance, according to its website.
Bailey questioned why the board chose to sell with lower valuations making it more difficult to finance large buyouts. He also questioned the robustness of the sales process as well as the need for a “no-shop” clause that “severely limited the company’s ability to solicit or encourage other proposals once the deal was announced.”
He contends that only Alvara’s management and its financial adviser, Goldman Sachs Group Inc., will benefit from the deal with both expected to be paid $60 million and $75 million, respectively, under the terms.
A decision to shelve the process in July was the “smartest thing the board did during this sales process” after the auction failed to draw any final bids on the company’s original timeline, he said.
“Unfortunately, it was not a decision that lasted,” Bailey added, noting that the board re-engaged with Vista shortly thereafter at a price that was almost 10% below its original indication of interest.
Bailey acknowledged the company’s revenue growth has been slowing. He argues that it isn’t an indication of something fundamentally wrong with the business and is unrelated to the market for tax compliance software.
“We are convinced that, in the near term, Avalara can deliver value to shareholders far in excess of the $93.50 per share that Vista is offering, and in the longer term, Avalara can compound that value as it executes its profitable growth strategy,” he said.
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