Disclaimers: https://www.transactionaldelights.com/disclaimers

With the news that Akaris Global Partners (a shareholder of Pluralsight) is seeking to vote against the sale of Pluralsight to Vista, I decided to take a look at some of the material terms and circumstances of the merger agreement and assess Akaris’ chances. Vista seeking to acquire Pluralsight is not particularly surprising given the climate – with enticing valuation levels for certain names and record funds raised, financial sponsors have been busy reviewing potential go-private deals.  

• Governing Law: Delaware.

• Deal Structure: Reverse Triangular Merger, signed on 12/11/20, expected to close 1H 2021 w/ termination date of 7/12/21.

• Consideration and Total Deal Price: All cash, $3.5 billion

• Majority Shareholder & Shareholder Vote: Majority approval of voting power – three classes of common stock: Class A (1 share, 1 vote), Class B (1 share, 1 vote), Class C (1 share, 10 votes). As of 10/30/20, PS had 145,694,625 shares of common stock outstanding, consisting of 119,624,728 shares of Class A, 12,669,110 shares of Class B, and 13,400,787 shares of Class C. If you do the math, Aaron Skonnard, CEO of PS, holds >50% of the voting power through his 100% ownership of Class C. Skonnard has entered into a voting agreement in connection with the merger agreement.

• Termination Fee / Reverse Termination Fee: ~3% termination fee, if target decides to sell to another buyer costs PS ~$100 million. No RTF for Vista.

• Shopping: No go-shop, with a no-shop and window-shop exception for a superior proposal.  

• Fiduciary out: Yes.

• MAE: Includes an exception for Covid.

• TRA: Tax Receivable Agreement. More on this below.  

Following the signing and public announcement of the deal, Akaris sent a letter to the Board of Pluralsight laying out their view of the deal. It’s kind of like a stop, look, and listen, but from a shareholder to other shareholders/Skonnard/3rd party:

• Focus on Price, $30/share[1], not $20.26/share

  • Compares merger consideration unfavorably to historical share price, analyst price targets, SaaS transactional comps, and notes unique value in IT space and accelerating growth: Cites comparisons to 52-week high, unaffected price, average analyst price targets, EV/2022 sales multiples, and specific analyst commentary on the deal. Points to strategic initiatives and growth tied to macroeconomic cycle – customer spending to rebound as “covid uncertainties resolve”.

•  Focus on Process  

  • Requests full disclosure on any potential conflicts of interest in the sales process: Cites concerns about conflicts relating to TRA[2] and questions for the PS Board regarding the sales process[3].

Why is the letter written this way? Because Akaris is fighting an uphill battle. It has a small stake in a multi class company with a controlling shareholder as CEO. Realistically, there are probably four outcomes.

• Vote Against the Agreement: Akaris can and will vote against it, but that action alone will have no effect on outcome.

• Rally other S/H for Vote against Transaction: Akaris is trying to do this with the letter. Skonnard makes one standard difficult (Maj. Control and s/h agreement) but, see update. [UPDATE: Two things to note here - Eminence Capital recently came out against the deal as well, and the agreement requires a second vote standard, which is a majority of the outstanding excluding members to the TRA and officers of the Company, so this bucket may have a chance.]

• Attract a 3rd Party Interloper: Akaris may also be trying to do this with the letter. The acquisition agreement allows for a third-party buyer with a superior proposal. This may be Akaris’ best bet to increase merger consideration – thus the focus on price and discount in letter, but I wouldn’t bet on it. It’s not possible to do a hostile takeover, it would have to be a friendly deal (although not friendly for Vista).  

• Court Remedy: An injunction stopping the deal is possible, but fact intensive. Akaris implies a theoretical disclosure/conflict of interest threat, but question as to how they would leverage. More facts are needed to determine the value of a post-closing remedy. [UPDATE: Eminence has put in a books and records request with the Company.]

So, Akaris’s letter is laser focused on two things: price (substance) and process. To get a positive outcome in two out of the four scenarios, they need Skonnard. In one of the four, they don’t need Skonnard, but it’s the most expensive and fact intensive.   

A few things come to mind in closing. Akaris isn’t known for their letter writing, or activism. Writing a public letter is relatively costless, except to reputation. So, it’s possible that Akaris is working on something else behind the scenes, but it’s also possible that this is just a frustrated shareholder doing a relatively costless, throwaway thing. For the transactionally minded: Is a court remedy in connection with a transaction the best way to bust up a multi-class company? And if so, when does the price justify the means?

[1] Before applying a control premium. This Bloomberg article suggests that $37/share is more in line with SaaS valuations.  

[2] “Certain undisclosed parties to the TRA are receiving a payment of $127 million while others are not.”

[3] Akaris cites a solicitation from the Company stating that Skongard will continue to lead the company as CEO after close.