World Wide Technology Acquires Softchoice Corporation

 January 5, 2024

NOTE: THIS BLOG IS NOT FINANCIAL ADVICE NOR INVESTMENT ADVICE AND DOES NOT REFLECT THE VIEW OR OPINIONS OF MY EMPLOYER

To conclude the year, on December 31, 2024, World Wide Technology ("WWT"), the St. Louis region's second-largest private company announced its acquisition of Softchoice Corporation ("Softchoice" or the "Company") (TSX:SFTC) in an all-cash transaction with consideration of C$24.50 per share, representing an enterprise value of ~C$1.8 billion (the "Transaction"). 

Founded by Jone Panavas and David Holgate in 1989, Softchoice began supplying niche software products to enterprise customers. Softchoice is now one of the leading technology solutions and services providers in North America. Softchoice is a Canadian software and cloud-focused IT solutions provider that is committed to helping companies reduce IT costs and streamline operations. Its offerings to North American SMEs include cloud and data services, collaboration and workplace solutions, software asset management (SAM), network services, security, and more. Softchoice collaborates with major partners such as Microsoft, Lenovo, Google, Cisco, VMware, and AWS to support its service offerings. Notably, Softchoice's SAM + Hub product enables companies to manage their enterprise software by visualizing spending and usage across subscriptions and optimizing these subscriptions based on actual needs.

The Transaction is expected to enhance WWT's core service offerings including cloud, cybersecurity, and software, thereby providing a comprehensive product suite. The acquisition of Softchoice complements WWT's existing business, enabling the combined company to scale operations, capture the North American middle market, and offer robust infrastructure, software, and cloud solutions.

The Transaction results in a ~62% total return (including dividends) compared to the initial public offering ("IPO") price of C$20.00 per share. The Transaction has the following takeover premiums:

The Transaction provides Softchoice shareholders with immediate liquidity and is supported by major shareholders including Birch Hill Equity Partners ("Birch Hill") (45%) and Directors & Officers (6.3%). Birch Hill initially took Softchoice private in April 2013 for C$20.00 per share for a total equity value of C$412 million. At the time, this consideration represented a 24% spot premium and a 27% premium to the 30-day VWAP. During Softchoice's 2021 IPO Birch Hill sold 13,125,000 common shares for C$262.5 million as part of a secondary offering. Later that year in October, Softchoice completed a C$150 million bought deal on behalf of Birch Hill, Keika Limited, and company employees and directors to sell common shares to institutional investors at C$29.50 per share. 

The Transaction was completed at a 13.2x TTM EV/EBITDA multiple. See key multiples below:

The company's board of directors unanimously approved the deal, which is expected to close in Q2 2025. A termination fee of C$49 million (US$34 million) is payable by Softchoice under certain circumstances, representing ~3% of equity value.

Overall, this deal represents a significant development for the Canadian technology sector. It is being completed at a compelling valuation, and the pro forma entity is well-positioned to become a leading North American technology solutions provider for years to come.

NOTE: THIS BLOG IS NOT FINANCIAL ADVICE NOR INVESTMENT ADVICE AND DOES NOT REFLECT THE VIEW OR OPINIONS OF MY EMPLOYER

Reference

1. Softchoice Investor Relations. Softchoice Corporation Closes Initial Public Offering for Gross Proceeds of C$350 Million. Source. June 1, 2021. Accessed January 5, 2024.

2. Softchoice Investor Relations. Softchoice Corporation Announces Closing of $150 Million Bought Deal Offering. Source. October 15, 2021. Accessed January 5, 2024.

3. Business Wire. Softchoice Corporation and World Wide Technology Enter Into Definitive Agreement for Softchoice to Be Acquired by World Wide Technology at a Price of C$24.50 Per Share. Source. December 31, 2024. Accessed January 5, 2024.

4. Softchoice Investor Relations. Softchoice Corporation and World Wide Technology Enter Into Definitive Agreement for Softchoice to Be Acquired by World Wide Technology at a Price of C$24.50 Per Share. Source. December 31, 2024. Accessed January 5, 2024.

5. Birch Hill Equity Partners. Birch Hill Equity Partners Enters into an Agreement to Take Private Softchoice Corporation for $20.00 per Common Share. Source. April, 22, 2013. Accessed January 5, 2024.

6. TechCrunch. Kyle Wiggers. Tech services firm WWT acquires Canadian IT provider Softchoice in all-cash deal. Source. December 31, 2024. Accessed January 5, 2024.