Citi has lowered its rating on shares of Instructure, Inc. (NYSE: INST) from Buy to Neutral and reduced the price target to $23.60 from $30.00.
The change follows the recent news that private equity firm KKR intends to purchase Instructure at a share price of $23.60, valuing the company at an enterprise value of $4.8 billion.
The downgrade was prompted by the acquisition announcement made on Thursday, which revealed KKR's proposal to buy Instructure. Citi's revised price target of $23.60 aligns with the proposed acquisition price.
Although the offer represents a 7% decrease from Instructure's one-month high, Citi views the offer price as reasonable, citing a 7.0x next twelve months (NTM) enterprise value to revenue (EV/rev) multiple. This valuation is slightly higher than Instructure's peer, PowerSchool Holdings, which trades at a 6.9x multiple.
Citi does not anticipate a competing offer to emerge, considering the acquisition process was reportedly competitive. Furthermore, the deal's closure seems probable given the Thoma Bravo-backed board, which holds a substantial 84% of Instructure's shares, is expected to approve the transaction.
The financial institution's stance reflects the expectation that the acquisition will proceed without significant hindrance, justifying the shift to a Neutral rating for Instructure's stock.
Instructure has also been downgraded from "Buy" to "Hold" by Jefferies, a global investment banking firm, in light of a proposed acquisition deal with KKR, a private equity firm. The acquisition, valued at approximately $4.8 billion, will result in Instructure becoming privately held and its common stock delisted from the New York Stock Exchange.
Despite the downgrade by Jefferies, BTIG and Truist Securities have maintained their "Buy" rating on Instructure's stock. This comes amidst reports of interest from other private equity firms, including Francisco Partners.
Instructure reported a 20.7% year-over-year increase in first-quarter revenues to $155.5 million, with subscription and support revenue seeing a significant 22.1% rise. Following these results, the company raised its fiscal year 2024 revenue outlook to a range of $656.5 million to $666.5 million.
InvestingPro Insights
As Instructure, Inc. (NYSE:INST) enters a new chapter with the acquisition by private equity firm KKR, investors are keen to understand the company's financial health and future prospects. According to InvestingPro data, Instructure has a market capitalization of $3.4 billion and has experienced a 13.5% revenue growth over the last twelve months as of Q1 2024. Despite this growth, the company has been trading at a high EBITDA valuation multiple, which could be a point of consideration for investors scrutinizing the acquisition's valuation metrics.
An InvestingPro Tip suggests that net income is expected to grow this year, aligning with analysts' predictions that the company will turn profitable within the year. Additionally, the company has shown a strong return over the last three months, with an 18.07% price total return. These factors may provide some confidence in the company's potential for future financial performance. However, it's important to note that short-term obligations exceed liquid assets, which could indicate potential liquidity risks that investors should be aware of.
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