I person been doing investigation connected companies, reference 10-Ks, etc.
I person been doing investigation connected companies, reference 10-Ks, etc. Coming crossed Dropbox, I felt conflicted. Drew Houston is simply a awesome founder, and the Dropbox communicative is 1 of galore lessons, including an 800 cardinal dollar acquisition connection from Steve Jobs. ICloud went connected to go a bigger business than Dropbox. And Sequoia’s finance successful Dropbox was a awesome one, 2nd to Airbnb successful Fund 12.
But arsenic of late, reference the 10-K and seeing the slowing growth, location was not overmuch to beryllium optimistic about. Again, Steve Jobs was right: Dropbox was so a feature, not a Product, and intelligibly the activity of endeavor companies that were features that IPOed and struggled is many. Thus, I person a thesis of a activity of consolidation successful this sector. And SaaS mostly has had a history of strategical consolidation.
Dropbox would not beryllium a strategical acquisition since astir of the awesome endeavor companies already person a coagulated retention business. But it does propulsion disconnected cash, and a batch of it. In FY2025, it threw disconnected 931 cardinal successful free rate flow. From a Hamilton Hemler perspective, their main powerfulness is to let for sustainable semipermanent rate flow, which would beryllium switching costs. Once a smb embedes their documents pinch Dropbox and uses it to negociate each their activity documents, it creates a switching costs because of the complexities successful switching and the harm it could origin successful switching; isolated from that their is nary existent different power. The switching costs do let pricing power, but that is apt fragile.
But while this is nary revenue-growing juggernaut, it’s a stable, cash-rich business, which is the benignant of perfect target for the likes of a Silver Lake to acquire. And the valuation is cheap, making the indebtedness load ratio reasonable, and usage the adjacent to 1 cardinal to salary down the debt. You could besides return an fierce attack successful reducing headcount and cutting R&D. The merchandise has mostly remained the same, and location has not been overmuch invention since the founding. In position of an exit strategy, location will astir apt not beryllium a re-IPO, and uncovering different acquirer is besides improbable. So apt conscionable harvesting rate is the perfect play.
So now present are immoderate unsmooth numbers. As of the clip of writing, the Enterprise Value is 6.43 billion. Assuming a 25% premium, the value would beryllium astir 8 billion. The FCF maturation has been strong, astir a 10% 3-year average, and 7% successful 2025. Assuming a guardant 5-year 3% maturation rate. Assuming 60% debt, 4.8 billion, and the remainder successful sponsor equity.
Overall consolidation is cyclical, and location are periods of IPO booms and galore caller companies, and past carnivore markets wherever the Berkshires of the world bargain awesome assets astatine moreover amended prices. But a instruction from this communicative is twofold: erstwhile Steve Jobs tries to bargain you, return it. Economically, the return from a superior ratio standpoint would beryllium overmuch better. Second, nationalist companies that are genuinely conscionable a characteristic ne'er springiness you awesome returns.
