Asserts a Sale to a Well-Capitalized Acquirer Can Unlock $70 Per Share, or a More Than 90% Premium for Shareholders, Based on Recent Software Acquisitions
Contends Many Financial Sponsors and Potentially Strategic Buyers Could Have Interest in Acquiring Everbridge
Argues the Board Is Misaligned with Shareholders and Rife with Potential Conflicts of Interest While Endorsing Extremely Problematic Executive Compensation Practices
CLEVELAND, March 17, 2022--(BUSINESS WIRE)--Ancora Holdings Group, LLC today issued the following letter that has been sent to Everbridge Inc.’s Board of Directors:
March 17, 2022
Members of the Board of Directors,
Ancora Holdings Group, LLC (together with its affiliates, "Ancora" or "we") is a significant shareholder of Everbridge, Inc. (NASDAQ: EVBG) ("Everbridge" or the "Company"), beneficially owning approximately 4.0% of the Company’s outstanding common stock. We have spent a considerable amount of time reviewing Everbridge’s corporate governance, executive compensation, operations and sales, and overall strategy. Given the immense destruction of shareholder value that has occurred under the current leadership team, we call on the Board of Directors (the "Board") to commence an immediate exploration of strategic alternatives. We believe Everbridge is dramatically undervalued at current stock prices, and a sale to a well-capitalized acquirer could deliver more than $70 per share, or a more than 90% premium, for shareholders based on recent valuation multiples for both public and private company peers.
We were first attracted to Everbridge because of its leading and dominant share of a large and still-growing market. As the market leader in Critical Event Management ("CEM"), we admire Everbridge’s mission to keep people safe and businesses running. The need for Everbridge’s technology offering has never been more important now that natural disasters, terrorism and cyber threats are on the rise.
Having pioneered the market for critical communications solutions, Everbridge should be commended for its early vision in helping protect people around the world by powering mass notification for both public sector and corporate entities. Building on this leadership position, Everbridge has successfully evolved from a single-product business into a diversified and robust platform selling a portfolio of solutions to address varied needs. In this context, the Company’s early strategy of consolidating adjacent technologies via tuck-in acquisitions made enormous sense. Through this approach, Everbridge established a dominant CEM offering by creating a platform that obviates the need for customers to contract with multiple point solution providers. As the markets for managing response to risks converge, we believe Everbridge is in an excellent position to continue winning market share.
In addition to a leading market position, the Company has other attributes that make the business highly attractive. Everbridge is widely considered to have the most robust technological platform in the industry. This is underpinned by the Company’s ability to deliver a differentiated offering backed by greater scalability in message volumes, two-way communication capabilities, extremely high reliability and global operations with a maintained local presence. The Company also has an attractive financial model with many enviable characteristics: multiple product offerings, high incremental gross margins, attractive unit economics and a model that should support material profitability at scale. Furthermore, the brand is synonymous with being the "gold standard" for CEM, where customer "reference-ability" creates substantial network effects that reinforce purchasing decisions among peers.
Unfortunately, despite these advantages and tailwinds, we believe the current Board and management team have failed to effectively manage the Company’s business, execute on the Company’s opportunities for growth and deliver value for shareholders. While the markets for software and information technology have enjoyed tremendous returns over the past several years, Everbridge has lagged with lackluster performance. When comparing Everbridge’s returns with its group of self-identified peers in its most recent proxy statement, Everbridge has underperformed across practically every time horizon. As one can see, this underperformance has only grown more dramatic with the passage of time.
AppFolio Inc Class A
Fastly, Inc. Class A
Ping Identity Holding Corp.
Sprout Social Inc Class A
PROS Holdings, Inc.
SPS Commerce, Inc.
Coupa Software, Inc.
New Relic, Inc.
Q2 Holdings, Inc.
Digital Turbine, Inc.
Upland Software, Inc.
Smartsheet, Inc. Class A
Workiva Inc. Class A
EVBG Relative Underperformance
We believe this underperformance is the result of ineffective leadership and a shocking amount of turnover among senior executives. When reviewing the list of leaders presenting at the Company’s 2018 Analyst Day, a surprising six of 13 employees are no longer with the management team only a few years later. When evaluating the named executive officers identified in the Company’s 2018 proxy statement, more than 80% of these officers have left the management team. This does not account for the departure of the most recent Chief Executive Officer, David Meredith, after only a few short years at the Company.
We Believe Everbridge Is Plagued by Haphazard Execution and Deteriorating Capital Allocation
As it has continued to expand its product portfolio and market presence, we do not believe that Everbridge has been able to properly operationalize its research and development ("R&D") resources. While Everbridge has invested in developing some products organically, the vast majority of product growth over the years has come through acquisitions. On the Company’s Q4 2021 earnings call, Everbridge called out the need to focus on integrating its acquired technologies. While this initiative makes sense, we are puzzled by why Everbridge is only now recognizing the need to integrate products after so many years, when a well-disciplined management team and Board would understand the advantages to executing on this as soon as possible.
With R&D increasing as a percentage of sales since the Company went public in 2016, during a period of predominantly inorganic product growth, we must question both the use and efficiency of the Company’s R&D program. What has all this expense been used for if not to integrate acquired technology? Regretfully, we believe the company’s R&D initiative is now tasked with the challenge of "playing catch-up" in streamlining the efficiency of a product portfolio acquired over many years. This is an extremely challenging task to take on while in the public market, and one we feel Everbridge is ill-equipped to navigate.
Although successful M&A was an early strength of the Everbridge operating model, we believe it has become increasingly expensive and less focused in recent years as Everbridge appears to have chased acquisition targets at increasing valuations. In 2021, the Company spent more on M&A in a 12-month period than in its entire history as a public company to date. Furthermore, the acquisition of Anvil was a large deal that appears to us and industry experts to be curiously off-the-mark: a primarily services-based business that doesn’t seem to fit with Everbridge’s long-standing focus on recurring revenue software. Everbridge does not disclose contributions from M&A, seemingly obscuring that the Company has been paying higher prices to acquire growth. This apparent deterioration in capital allocation discipline is extremely troubling and suggests that the current leadership team is increasingly willing to gamble with shareholders’ resources.
It is our belief that Everbridge would not feel the need to "reach" for M&A were it not for the fact that the Company’s go-to-market engine has stalled under the current leadership team. As Everbridge has evolved from selling a single product to selling a platform targeting multiple buyers across different geographies, its direct sales force has unfortunately failed to keep pace. Instead, under current Chief Revenue Officer Vernon Irvin, Everbridge seems to have fumbled execution in countless areas. A review of comments on Glassdoor and conversations with former employees reveal a culture of micromanagement of a sales organization in turmoil, where many account executives are leaving because of a failure to hit quota. Furthermore, the Company has failed to develop a robust channel initiative despite communicating its intention to do so for years. This has resulted in lackluster deal activity in the federal sector, where Everbridge has an enormous market opportunity.
Notably, the Company’s latest Chief Marketing Officer, Stacey Wu, recently abruptly resigned. Everbridge must now undertake the challenge of rebuilding virtually every aspect of its go-to-market efforts, restructuring the sales force and rebuilding important lost muscle in the marketing department. Although these challenges are solvable, we do not believe they can be addressed by the current management team.
We are deeply troubled by the Company’s response to its current circumstances. As described above, the deterioration in operational discipline that has occurred in recent years has permeated every aspect of the organization: we believe M&A has become undisciplined under the leadership of Chief Financial Officer Patrick Brickley, who owns responsibility for the finance department. Furthermore, we believe sales and marketing ("S&M") has collapsed under the leadership of Mr. Irvin. Rather than acknowledge the failure of these individuals, the Board has chosen to "double down" on empowering the very team that precipitated Everbridge’s current debacle by imparting these two leaders with "co-CEO" roles. In our view, this is a shockingly tone-deaf maneuver. To proceed with the expectation that the very team that created this situation could be expected to solve it would be to embrace the status quo and further destruction of shareholder value. Perhaps the Board would not be willing to gamble the Company’s future on a "Hail Mary" pass if directors owned a meaningful number of shares.
We Believe the Board Is Misaligned with Shareholders and Blind to Blatant Conflicts of Interest, and Endorses Extremely Problematic Executive Compensation Practices
It has been quite some time since we have come across a situation where the Board’s lack of alignment with shareholders is as concerning as it is at Everbridge. As illustrated above, shareholder returns have been abysmal across every time horizon analyzable. While shareholders have suffered tremendous harm, insiders have been insulated from the collapsing share price largely because of their minimal ownership. Instead, insiders have been consistent net sellers of shares despite generous share grants throughout the years. Reviewing data from Insider Score shows that since going public, current and former insiders of Everbridge have sold nearly 5,000,000 shares of common stock for a value totaling over $250 million, while purchasing a mere 23,000 total shares, or $1.5 million in value.
As of the Company’s most recent proxy statement, the Company’s officers and directors collectively own less than 1% of the Company’s shares. This is a shockingly low level of alignment with shareholders and ranks among the lowest insider ownership percentages of the Company’s own proxy peers.1 While this does not include recent share grants to the co-CEOs, we believe these grants are troubling in their own right. According to an 8-K filed on December 9, 2021, co-CEOs Brickley and Irvin were to receive $5 million worth of restricted stock units ("RSUs") "on or about January 1, 2022." Instead, the Board seemingly withheld these share grants for another 60 days, only issuing the grants on March 2, 2022. In our conversation with co-CEO Brickley, he explained this delay was due to the Company being restricted from issuing awards during a blackout period. However, this explanation appears suspicious, considering the Board was nonetheless able to issue RSUs to newly appointed director David Henshall in a Form 4 filing dated January 11, 2022. By delaying the co-CEO grants until after the Company issued disappointing results and guidance, it appears the Board only served to further dilute shareholders by requiring more share grants at lower prices. The optics of this information asymmetry are troubling and suggest the Board has chosen to prioritize enriching company executives at the expense of shareholders.
We believe this glaring lack of accountability to shareholders is further illustrated by the questionable actions of Chairman Jaime Ellertson. After successfully dumping more than 95% of his initial stake in the Company at the time of the Company’s IPO, Mr. Ellertson has subsequently established a venture capital firm called Akmazo Capital. Despite his duty to shareholders as Chairman of Everbridge, Mr. Ellertson appears to have siphoned away top talent of Everbridge, such as former Chief Technology Officer Imad Mouline and former SVP of Engineering Yuan Cheng, both of whom now work for Akmazo Capital. This strikes us as a glaring conflict of interest and potentially a breach of fiduciary duty to the shareholders of Everbridge. We believe the Board must rediscover its duty to shareholders and immediately move to enact a formal review of strategic alternatives, including a sale of the business.
The Right Time to Explore Strategic Alternatives
We believe Everbridge is a valuable strategic asset addressing a mission critical need in a large market with vast upside potential. We believe Everbridge is dramatically undervalued at current share prices, representing an attractive acquisition target to both strategic and financial buyers. In our view, the issues the Company is facing are not structural, but rather self-inflicted due to incompetent leadership that has failed to execute. We believe that, operated by a capable team, Everbridge will be able to rectify its current issues and recapture a trajectory of durable growth. This is not something we believe can be achieved through the hiring of a single, or even a few, new executives. To be clear, we do not believe that simply hiring a new CEO would be enough to set Everbridge back on course. Considering the pervasive issues at the Company, turning Everbridge around in the public eye is likely a challenging endeavor that is fraught with risk. However, this is just the task that private equity firms highly skilled in operational discipline would be well-equipped to accomplish. There are a number of financial sponsors with operating assets in the CEM industry, as well as strategic buyers, that we believe would be well-suited to operate the business more effectively.
Everbridge represents an attractive asset for an acquirer to consolidate the market and continue taking share. Our analysis suggests that a financial sponsor could pay $70 per share to acquire Everbridge, or 7.5x EV/Sales, which is consistent with valuation multiples of public company peers as well as recent software acquisitions. We believe a strategic acquirer that has the potential to enjoy both revenue and cost synergies could justify an even higher price. While Everbridge has struggled to successfully evolve its direct sales and channel initiatives as an independent entity, we contend that Everbridge would benefit tremendously from a strategic owner’s developed routes to market in the enterprise and international markets. This has the potential to dramatically accelerate Everbridge’s growth under new ownership.
As shown below, the comparison group of Everbridge software peers identified in the Company’s 2021 proxy statement trades at a substantial premium to the Company’s current valuation:
TEV / Revs
Sprout Social, Inc.
PROS Holdings, Inc.
SPS Commerce, Inc.
Coupa Software Inc.
New Relic, Inc.
Q2 Holdings, Inc.
Digital Turbine, Inc.
Upland Software, Inc.
Source: Capital IQ.
When evaluating a list of software acquisitions that have occurred in recent years, take-out valuations are again materially higher than Everbridge’s current trading multiple:
EV / NTM
Slack Technologies, Inc.
Hellman & Friedman LLC
Qualtrics International, Inc.
Red Hat, Inc.
CA Technologies, Inc.
Average <20% Growers
Average 20-30% Growers
Average >30% Growers
Source: Wells Fargo Securities.
As illustrated below, when applying a sensitivity analysis to Everbridge’s valuation, there is substantial upside to the current share price:
Everbridge Scenario Analysis
2022 Revenue midpoint
- Convertible debt
Fully diluted shares
Upside to current price
Source: Ancora estimates.
In sum, it is obvious to us that Everbridge is a high-quality business that remains dramatically undervalued. Unfortunately, we have no confidence that this value will be unlocked by the current management team or Board, which we feel are principally responsible for years of mismanagement and value destruction. Furthermore, we strongly oppose the hiring of a new CEO, which we believe will only serve as another distraction that introduces even more instability. Instead, we believe the Board must urgently take action to close the valuation gap through a prospective sale of the Company, which will provide immediate value to shareholders at a premium rather than continuing to let them suffer the current status quo.
Fredrick D. DiSanto
Chief Executive Officer and Executive Chairman
Ancora Holdings Group, LLC
Ancora Alternatives LLC
Founded in 2003, Ancora Holdings Group, LLC offers integrated investment advisory, wealth management and retirement plan services to individuals and institutions across the United States. The firm's comprehensive service offering is complemented by a dedicated team that has the breadth of expertise and operational structure of a global institution, with the responsiveness and flexibility of a boutique firm. For more information about Ancora, please visit https://ancora.net.
1 Company peers include APPF, FSLY, PING, SPT, BL, FIVN, PRO, SPSC, COUP, NEWR, QTWO, APPS, OSPN, RPD, UPLD, DT, PD, SMAR and WK.
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