Avid sold for $1.4 billion: what comes next?

Several months after it was revealed that it was exploring its options, Avid was sold overnight to private equity firm STG for $1.4 billion. Is a separate ProTools sale next?

[Update: After approval by Avid stockholders on November 2, the sale was formally completed on November 7.]

The announcement of Avid’s sale to venture capital firm STG came after the markets had closed yesterday and the Media Composer manufacturer’s (and ProTools owner’s) latest financials had been announced. Back in May, when talk of a sale first emerged, Avid shares jumped up 22.9%. And on 3 August when Reuters wrote that Symphony Technology Group (STG) and Francisco Partners were among the private equity firms competing to buy the group, they jumped another 18% to close at $27.32 a share according to Devoncroft.

The sale price didn’t quite achieve that high-water mark, achieving a price of $27.05 a share and valuing the company at $1.4 billion, which is not too bad especially when you consider that at least $210 million of that is debt according to those latest financial figures. However, as recently as April this year the stock was trading at $33.21 a share, meaning the board has accepted and recommended an offer that is 18% lower than the price four months ago.

Meanwhile, the NASDAQ has gone up 17% or thereabouts. So what’s going on?

Some implications

Okay, so to start off, what does all this mean for end users? Initially, probably not much. Jeff Rosica, Avid’s Chief Executive Officer and President, talks about working together with Palo Alto-based STG to “help accelerate the achievement of our strategic vision, building on the momentum of our successful transformation achieved over the past several years,” so there are going to be no immediate management changes from the sounds of it.

The newly purchased company is going to be held privately once more, allowing it to do what it likes without having to accommodate shareholders’ wishes, and what there may well be is an increased focus on the subscription model. Those recently released financials talked a lot about the strong growth in enterprise subscription revenue. Subscriptions reached approximately 544,400 as of June 30, 2023, an increase of 20.9% year-over-year, producing $154 million, an increase of 27.0% year-over-year.

That’s about £283 per subscription.

However, there is a lot of detailed financial speculation that suggests Avid has perhaps been sailing in slightly choppy waters of late. Interest rates have gone up substantially on that debt pile for starters, and while its adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), one of the key metrics used on the financial side of the industry), has risen to $16.9 million for this quarter from a weak $12.7 million in Q1 (a figure which tanked its share price in May), that is still very much at the low end of guidance for the year.

All of which is what leads us to speculation of what the end game here might be for a company that can suddenly do what it wants: to break up the business and sell the jewel in the crown that is ProTools. 

ProTools is *the* success story for the company. The company hasn’t broken out the audio side of the business separately in its reporting for a couple of years now, arguably because it made the rest of the business look bad. But last time it did, in the 2020 financial year, Audio in the shape of ProTools and Sibelius accounted for 45% of its product revenue. And, in terms of active subscriptions, somewhere in the region of two thirds of them come from the audio base.

And that is a user base perhaps possibly worth paying a considerable sum of money for.

(If you really want to dive into the weeds of all this, especially the financial side, Devoncroft's analysis is hard to beat.)