Firm: Workiva (WK)
Enterprise: Workiva is a supplier of cloud-based reporting options which are designed to resolve monetary and non-financial enterprise challenges on the intersection of information, course of and folks. The corporate presents its unified software-as-a-service, or SaaS, platform that brings prospects’ monetary reporting; environmental, social and governance (ESG); and governance, danger and compliance (GRC) collectively in a managed, safe, audit-ready platform. The Workiva platform is multi-tenant cloud software program deployed in a number of areas worldwide for assured built-in reporting. The corporate’s platform is constructed totally on Amazon Internet Providers and consists of each proprietary and open-source applied sciences. Its Workiva platform helps prospects by connecting and reworking knowledge from a whole lot of enterprise useful resource planning, human capital administration, and buyer relationship administration programs, in addition to different third-party cloud and on-premises purposes.
Inventory Market Worth: $4.92 billion ($87.46 per share)
Activist: Irenic Capital Administration
Possession: ~2.0%
Common Price: n/a
Activist Commentary: Irenic Capital was based in October 2021 by Adam Katz, a former portfolio supervisor at Elliott Funding Administration, and Andy Dodge, a former funding associate at Indaba Capital Administration. Irenic invests in public firms and works collaboratively with agency management. Their activism has to this point targeted on strategic activism, recommending spinoffs and gross sales of companies.
What’s occurring
On Sept. 29, Irenic introduced that they’ve taken a roughly 2% place in Workiva and are calling on the corporate to enhance its working effectivity, evaluate strategic options with recent board oversight, together with a possible sale of the corporate, and enhance company governance practices, together with collapsing its dual-class share construction. Irenic additionally known as on the corporate so as to add two new board members, together with Irenic govt Krishna Korupolu, to the board, and famous that they haven’t dominated out nominating administrators if the 2 sides cannot attain an settlement.
Behind the scenes
Workiva is the main supplier of cloud-based reporting options, integrating monetary reporting, sustainability administration, and governance, danger, and compliance, right into a sharable, data-integrated, and audit-ready surroundings. Over 40% of the corporate’s income is derived from its SEC submitting service, which simplifies regulatory filings and different disclosures for public firms. This can be a nice enterprise that serves a few of the world’s largest enterprises, with 95% of the Fortune 100, 89% of the Fortune 500 and 85% of the Fortune 1000 utilizing its platform, supported by an roughly 97% buyer retention fee that has enabled constant mid-teens income progress.
However the issue for Workiva lies not within the high quality of its enterprise, however quite its lack of profitability. Regardless of scaling towards greater than $1 billion in income by 2026 and over 10 years working within the public markets, Workiva is but to generate a revenue. Because of this, Workiva shares presently commerce at a roughly 25% low cost to utility software program rivals like Workday and ServiceNow.
This low cost and operational challenges have drawn the eye of Irenic Capital, who has disclosed an roughly 2% place within the firm and issued a presentation to the Workiva board calling for governance enhancements, operational modifications and a evaluate of strategic options.
Governance is an actual concern at Workiva and an apparent motive for the discounted inventory worth. Workiva continues to be run like a non-public firm with its three founders controlling the corporate by means of the twin share class construction. This has led to a staggered board with little related expertise and 5 of seven administrators serving for the reason that 2014 IPO.
Irenic want to see the twin class share construction collapsed and the board de-staggered and reconstituted with certified administrators together with Irenic govt Krishna Korupolu. On this planet of shareholder activism, that is usually tantamount to asking a rustic like North Korea to transform to a democracy, however Irenic’s prospects usually are not hopeless right here (extra on that later).
Operationally, you get what you’d count on from a founder-controlled firm — a particularly bloated SG&A. A lot of the margin stress might be attributed to inefficiencies within the firm’s working mannequin, significantly inside its gross sales power, as gross sales and advertising and marketing presently occupy 43% of income in comparison with 31% on common for friends. This has produced an estimated working margin for calendar yr 2025 of seven%, regardless of having 80% gross revenue margins. SaaS firms of this caliber ought to be capable of meet “Rule of 40” targets (working margins plus income progress equal or exceeding 40), a stage of effectivity that may be extraordinarily accretive to shareholders, which Irenic believes is achievable by FY 2027.
Workiva presently has an 18% income progress fee however spends an inordinate sum of money to get the final couple of proportion factors. It ought to be capable of maintain double-digit income progress with far much less gross sales power spending, which may in itself meaningfully change the corporate’s margin profile. Combining this with the corporate’s extraordinarily sturdy pricing energy suggests room for important profitability enhancements.
Irenic states that if Workiva is unable to execute as a refocused public firm with improved company governance, the board (ideally revamped) ought to run a strategic evaluate, pursuing a sale of the corporate to find out the most effective risk-adjusted path for shareholders.
Workiva is a market chief in a secularly rising enterprise with an enormous blue-chip clientele and no actual quantity two in relation to its SEC submitting service. The standard of Workiva’s enterprise ought to imply no scarcity of personal and strategic curiosity. The truth is, in 2022, studies surfaced that PE companies Thoma Bravo and TPG had curiosity in a possible acquisition. Logical strategic acquirers embrace comparable monetary administration platforms like Intuit, inventory alternate operators (Nasdaq, LSEG, Deutsche Börse), in addition to software program behemoths corresponding to Salesforce, Oracle and IBM, all of whom may understand significant synergies.
Comparable transactions — Smartsheet/Vista Fairness (7x income), Coupa/Thoma Bravo (8x), AspenTech/Emerson Electrical (14x), and AltairEngineering/Siemens (14x) — counsel a 7 to eight instances ahead income a number of for monetary acquirers, which at $1 billion projected income for 2026, would suggest 40% to 60% upside, with the potential for even greater premiums in a strategic transaction given the potential for important synergies.
Whereas Irenic’s public presence at Workiva has doubtless piqued the curiosity of potential acquirers, the underside line right here is, as an successfully managed firm, nothing can occur with out the consent of the controlling events – the three founders, who by means of a twin class construction management roughly 44% of the voting energy.
Whereas such elements can usually stifle an activist marketing campaign, there are a number of explanation why this example could also be completely different. First, this isn’t a founding household however three completely different founders that aren’t essentially aligned and should have grown aside.
Matthew Rizai resigned as chairman and CEO in June 2018 with a pleasant severance bundle. This and the truth that he was changed by co-founder Martin Vanderploeg as CEO and didn’t even keep on the board signifies that this may need not been as mutual as the corporate’s press launch acknowledged. Jeffrey Trom lowered his duties on the firm in 2022, resigned in 2023 and ended a consulting relationship in 2024. Moreover, all three founders are over 65 years of age and have been slowly promoting shares. Of the three founders, solely Vanderploeg stays actively concerned within the firm because the non-executive chairman and he has 10.6% of complete voting energy versus 24.6% for Rizai and 9.2% for Trom. On the worth that Irenic thinks this firm may fetch in a sale, it’s exhausting to consider that they’d not be capable of get the assist of Rizai and/or Trom.
Moreover, Irenic has acknowledged that they haven’t dominated out nominating administrators if the 2 sides cannot attain an settlement and if it does come to that, we’d not essentially assume the three founders are aligned.
Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.