On Thursday, Jefferies, a global investment banking firm, downgraded shares of Instructure, Inc. (NYSE:INST), an educational technology company, from "Buy" to "Hold." The firm also adjusted the price target to $23.60 from the previous $30.00. This move comes in response to the announcement that private equity firm KKR will acquire Instructure at a purchase price of $23.60 per share.
The acquisition price represents a 16% premium over Instructure's stock price as of May 17th, the day before merger and acquisition media reports surfaced. The deal values Instructure at approximately 7 times its next twelve months (NTM) revenue, which is consistent with the range of recent deals in the educational technology sector that typically fall between 7 to 11 times NTM revenue.
Jefferies acknowledges Instructure's strong performance, referring to the company as a "rule of 50 compounder" in the educational technology space, indicating its potential for sustained revenue growth and profitability. Despite this positive outlook, Jefferies justifies the downgrade by pointing out that the agreed acquisition price offers limited upside potential for the stock, aligning the new price target with the takeover bid.
The revised price target of $23.60 is now set to match the acquisition price offered by KKR, reflecting the anticipated completion of the takeover. As the deal approaches its final stages, the market is expected to adjust to the new valuation, with Instructure's stock price likely aligning closely with the buyout price.
In other recent news, Instructure Holdings, Inc., an eminent learning ecosystem provider, has agreed to a $4.8 billion acquisition deal with KKR, a global investment firm. This transaction will result in Instructure becoming a privately held company, with its common stock delisted from the New York Stock Exchange. In addition, BTIG has adjusted its price target for Instructure shares to $27, maintaining a Buy rating, following developments regarding potential acquisition offers. Truist Securities also upheld a Buy rating on Instructure stock, amidst reports of interest from private equity firms Francisco Partners and KKR.
Instructure recently reported a 20.7% year-over-year increase in first-quarter revenues to $155.5 million, with subscription and support revenue, accounting for 93% of total revenue, seeing a significant 22.1% rise. The company has raised its fiscal year 2024 revenue outlook to a range of $656.5 million to $666.5 million, and CEO Steve Daly reiterated Instructure's goal of becoming a $1 billion revenue company by 2028. These are the latest developments in the company's operations.
InvestingPro Insights
As Instructure, Inc. (NYSE:INST) prepares for the acquisition by private equity firm KKR, real-time data from InvestingPro provides a deeper financial perspective on the company's current standing. With a market capitalization of $3.39 billion, Instructure is navigating through a challenging phase. Analysts have revised their earnings upwards, signaling potential growth, aligning with Jefferies' view of the company as a "rule of 50 compounder." Despite the recent dip in stock price by nearly 10% over the last week, Instructure's revenue growth remains robust at 13.5% over the last twelve months as of Q1 2024, with a quarterly increase of 20.65% in Q1 2024.
InvestingPro Tips highlight that while Instructure is currently trading at high valuation multiples across EBIT, EBITDA, and revenue, analysts predict the company will turn profitable this year. This anticipated shift towards profitability may provide a positive outlook post-acquisition. Additionally, with no dividend payouts to shareholders, investors' returns will be mainly driven by stock performance and the strategic decisions made by the new ownership.
For investors seeking to make informed decisions, more InvestingPro Tips are available, offering insights into Instructure's financial health and future prospects. To access these valuable tips and make the most of your investment strategy, use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription at InvestingPro.
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