Firm: Workiva (WK)
Enterprise: Workiva is a supplier of cloud-based reporting options which might be designed to resolve monetary and non-financial enterprise challenges on the intersection of information, course of and other people. The corporate gives its unified software-as-a-service, or SaaS, platform that brings prospects’ monetary reporting; environmental, social and governance (ESG); and governance, threat 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 Companies and consists of each proprietary and open-source applied sciences. Its Workiva platform helps prospects by connecting and reworking knowledge from lots of of enterprise useful resource planning, human capital administration, and buyer relationship administration methods, 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 accomplice at Indaba Capital Administration. Irenic invests in public corporations and works collaboratively with agency management. Their activism has to date 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, overview 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 referred to as on the corporate so as to add two new board members, together with Irenic government 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, threat, 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 corporations. It is 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. Consequently, Workiva shares at present commerce at a roughly 25% low cost to software 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 adjustments and a overview of strategic options.
Governance is an actual challenge at Workiva and an apparent motive for the discounted inventory value. Workiva remains to be run like a personal firm with its three founders controlling the corporate by way of the twin share class construction. This has led to a staggered board with little related expertise and 5 of seven administrators serving because the 2014 IPO.
Irenic wish to see the twin class share construction collapsed and the board de-staggered and reconstituted with certified administrators together with Irenic government Krishna Korupolu. On the planet of shareholder activism, that is usually tantamount to asking a rustic like North Korea to transform to a democracy, however Irenic’s prospects aren’t hopeless right here (extra on that later).
Operationally, you get what you’d anticipate from a founder-controlled firm — a particularly bloated SG&A. A lot of the margin strain could be attributed to inefficiencies within the firm’s working mannequin, significantly inside its gross sales drive, as gross sales and advertising at present occupy 43% of income in comparison with 31% on common for friends. This has produced an estimated working margin for calendar 12 months 2025 of seven%, regardless of having 80% gross revenue margins. SaaS corporations of this caliber ought to have the ability to meet “Rule of 40” targets (working margins plus income progress equal or exceeding 40), a degree of effectivity that might be extraordinarily accretive to shareholders, which Irenic believes is achievable by FY 2027.
Workiva at present has an 18% income progress fee however spends an inordinate amount of cash to get the final couple of share factors. It ought to have the ability to maintain double-digit income progress with far much less gross sales drive spending, which may in itself meaningfully change the corporate’s margin profile. Combining this with the corporate’s extraordinarily robust pricing energy suggests room for vital 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 overview, 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. In actual fact, in 2022, reviews surfaced that PE corporations Thoma Bravo and TPG had curiosity in a possible acquisition. Logical strategic acquirers embrace comparable monetary administration platforms like Intuit, inventory trade 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 occasions 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 larger premiums in a strategic transaction given the potential for vital synergies.
Whereas Irenic’s public presence at Workiva has possible 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 way of a twin class construction management roughly 44% of the voting energy.
Whereas such components can usually stifle an activist marketing campaign, there are a couple 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 package deal. 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 might need not been as mutual as the corporate’s press launch said. Jeffrey Trom decreased 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 value that Irenic thinks this firm may fetch in a sale, it’s exhausting to consider that they might not have the ability to get the help of Rizai and/or Trom.
Moreover, Irenic has said 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.
