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Thoughts on Siris Capital Acquiring PGi

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Thoughts on Siris Capital Acquiring PGi
    

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11 Sep 2015
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On 10 September, PGi, the global provider of unified communication and collaboration services, announced its acquisition by New York-based Siris Capital Group for approximately $1B.  With this acquisition, PGi will move from being a publicly-traded company to a privately-held organization.

Siris Capital is a qualified group that consists of several previous co-founders of the private equity group at billionaire Steven Cohen’s S.A.C. Capital Advisors (now Point 72 Asset Management).  S.A.C. was one of the largest hedge funds in the world before shutting down in 2014 after an insider trading settlement with the SEC.

While there is still a 45-day “go-shop” period during which PGi may solicit alternative proposals, WR feels fairly sure this deal will stick.  Siris is known for taking over companies where the market or technology is in transition, then “pivoting” the company (with new products, markets, and/or strategy) to gain greater value.  PGi qualifies in this definition, because UC and PWC pre-paid services are pushing down hard on post-paid audio conferencing (PGi’s primary service), and freemium services from FreeConferenceCall.com and others are pushing up from the bottom -  all CSPs like PGi (Arkadin, InterCall, BT, and others) feel the crunch on their traditional standalone audio business (usually 75-80% of revenues).

So what does a post-acquisition PGi look like?  Boland Jones, the Chairman of PGi, states that the Siris acquisition will provide greater flexibility to accelerate their strategy in UC&C.  While that is probably an accurate statement, WR believe that a big part of that “flexibility” will be speed.  Without the public quarterly earnings commitment and ever-present financial analysts and media, PGi can invest and make new bets that might hurt finances short term, but provide longer-term growth.  In addition, while PGi has been very aggressive in making two-three acquisitions annually, the pace or scale of these acquisitions may increase under Siris.

This brings to mind Citrix’s impending disposition of the GoToMeeting product line.  In July 2015, after activist investors from Elliott Management were appointed to the Citrix board, Citrix announced it had hired Qatayst Partners and Goldman Sachs to provide financial advice “on the strategic alternatives for the GoTo family of products” – meaning it will sell the product line.  Earlier, in May 2015, Citrix had acquired Grasshopper, a cloud-based telephony service.  In our minds, Citrix’s GoTo, OpenVoice, and Grasshopper product lines all go together – they are all communication and collaboration services.  WR estimates this would likely be a $600+ million acquisition – something Siris might be in a better place to acquire, if PGi were considering it.

Yes, we understand PGi already has its own SaaS products in GlobalMeet and iMeet that contribute to a growing percentage of all revenue.  However, the GoToMeeting product would allow PGi to pick up new customers in the micro and small business segment, which is often in the low-end “freemium” category, while their recently acquired Modality helps with larger customer acquisition for UC from which they might otherwise be excluded.  PGi could solve the “squished in the middle” problem where UC and freemium cannibalize the post-paid audio business.

Whether our speculation about Citix’s GoTo line is right or wrong, one thing is for sure, things will not remain the same at PGi after the close of the Siris acquisition.  Siris will be paying a 32% premium (over the 90-day, volume-weighted average share price) for PGi, so they must have some solid ideas how to make that, and more, back on their investment.