Progress Software (NASDAQ: NASDAQ:PRGS) retained its Overweight rating from JPMorgan (NYSE:JPM) with a steady price target of $63.00 following the announcement of an agreement to acquire ShareFile, a cloud-native SaaS collaboration software provider.
The purchase price of the acquisition is set at $875 million, to be paid in an all-cash transaction. The payment will be sourced from Progress Software's cash reserves and its existing credit facility.
ShareFile specializes in document-centric collaboration services, catering to sectors such as business, professional services, financial services, healthcare, and construction.
The platform offers a suite of features including automated workflows, secure file sharing and syncing, client portals, and integrated e-signatures, along with a range of AI-enhanced functions.
Progress Software's management expects the acquisition to be beneficial to both revenue and margins.
JPMorgan expects that the integration of ShareFile is projected to contribute over $240 million in annual revenue and increase the company's Annual Recurring Revenue (ARR) to more than $800 million.
Post-acquisition, Progress Software anticipates reaching approximately $1 billion in revenue and exceeding 40% in operating margins once the integration is complete.
The company has outlined a strategy to achieve full cost synergies within 12 months following the acquisition. In preparation for this financial maneuvering, Progress Software has also decided to suspend its quarterly dividend payments.
Following the deal, Progress Software plans to suspend its quarterly dividend to reallocate capital towards debt repayment and share repurchase initiatives.
The company's recent earnings report showcased revenues of $175 million and earnings per share of $1.09, surpassing expectations. DA Davidson maintained a Buy rating on Progress Software, expressing confidence in the firm's strategic move to acquire ShareFile.
The acquisition, which is expected to close by the end of the fiscal year, is part of Progress Software's growth strategy, aligning with the company's focus on mergers and acquisitions.
InvestingPro Insights
As Progress Software (NASDAQ:PRGS) embarks on its strategic acquisition of ShareFile, it's worth examining some key financial metrics and analyst insights that could influence investor perspective. With a market capitalization of $2.41 billion and a forward-looking P/E ratio of 27.97, the company's valuation reflects investor confidence in its earnings potential. This is further supported by an impressive gross profit margin of 85.91% over the last twelve months as of Q2 2024, underscoring the company's efficiency in generating revenue relative to its costs.
InvestingPro Tips reveal that analysts expect net income growth for Progress Software this year. This forecast aligns with the company's own expectations of revenue and margin benefits from the ShareFile integration. Furthermore, the company's strong return over the last three months, with a price total return of 15.28%, suggests a positive market reception to its recent activities and future potential. For those seeking deeper analysis and additional insights, there are 6 more InvestingPro Tips available on Progress Software, which can be accessed for further informed investment decisions.
With the next earnings date set for September 24, 2024, investors will be keen to assess the immediate impact of the acquisition on Progress Software's financials. The company's strategy to suspend dividend payments and focus on debt repayment and growth initiatives may also be a point of consideration for those evaluating the long-term value of their investment.
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