KKR/Cloudera: decent price for a disappointing business

Cloudera is finally making it rain for shareholders. It just had to sell itself to do it. The US cloud-based data analytics company, whose shares have endured a rocky run, has agreed to be acquired by private equity groups KKR and Clayton, Dubilier & Rice for $5.3bn, including debt.

The take-private bid of $16 per share represents a 24 per cent premium to Cloudera’s closing price on Friday. Underscoring Cloudera’s struggles as a listed company, the offer is just a dollar more than the company’s 2017 IPO price of $15.

Palo Alto-based Cloudera creates tools and provides services that help companies analyse and manage big data. Cloud computing has become crowded since the company was founded in 2008. Cloudera has suffered a revenue growth rate slowdown from more than 60 per cent in 2016 to single digits last year. It earned notoriety when it became the first “unicorn” to go public at a valuation significantly below its notional private worth. 

An all-stock merger with rival Hortonworks in 2018 did little to help. Integration problems caught the attention of Carl Icahn. The activist, who owns an 18 per cent stake in Cloudera, backs the take-private offer from KKR-CDR.

KKR and CDR are stumping up to acquire Cloudera, which made a net loss of $163m on $783m of revenue last year. The two are paying about 20 times this year’s projected ebitda. That is where Microsoft, a company that pulled in $143bn in revenue and $44bn of profit in its last fiscal year, is trading.

Competition from Big Tech in cloud computing is not going away. But debt remains cheap. S&P consensus estimates point — perhaps optimistically — to Cloudera revenues over $1bn and ebitda exceeding $300m in three years. Suppose a quarter of the acquisition price is equity and the buyout duo sell at a 20 times ebitda multiple. They would make $700m before costs, equivalent to a 50 per cent return on equity.

That would be tolerable result from a business that was simply, though belatedly, hitting its targets.

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