World investing powerhouse Vista Equity Partners has announced plans to purchase Avalara, a provider of automated tax compliance software, in an all-cash deal valued at $8.4 billion.
The Seattle-based Avalara, which was established in 2004, works with businesses including Zillow, Pinterest, and Roku to automate many of the labor-intensive procedures associated with handling taxes in each of the markets in which they do business.
Keeping track of which specific services are taxed, and at what rates, is crucial for operating a legally compliant firm. In fact, many countries throughout the world collect taxes depending on where a service is consumed, rather than where the service provider is situated. For businesses trying to comply with local tax rules, things may rapidly become complicated when a wide range of factors, such as whether a transaction is B2C or B2B or whether a product is digital or physical, are added to the mix.
To ensure that its clients always have access to the most recent data on sales and use tax, VAT and goods and service tax (GST), excise, and other taxes, Avalara offers a funnel into local tax databases.
Prior to its 2018 IPO, the firm raised about $341 million. However, like many other businesses recently, Avalara has seen a “correction,” with its market cap dropping by over 60% in the past year to $6 billion last month before climbing back to more than $8 billion as of last week.
Along with the announcement of the acquisition, Avalara also released its Q2 financial results. While it recorded a year-over-year sales increase of 23%, its operating loss more than doubled to $56 million over the same period.
Although the proposed share acquisition price of $93.50 is slightly less than Friday’s closing price of $95 for Avalara, Vista claims that it offers a premium of 27% over its closing share price of exactly one month ago.
“For nearly two decades, Avalara has ambitiously pursued its vision to automate global compliance, making tax less taxing for businesses and governments around the world. We are pleased to partner with Vista and will benefit from their expertise in enterprise software as we build and improve upon our cloud compliance platform.”Avalara co-founder and Chief Executive Scott McFarlane
Even still, the $8.4 billion price tag is significant and demonstrates the wider appeal that automated tax compliance software has among investors; for example, in the past eight months, Taxdoo, a German firm, has raised $64 million, while Fonoa, an Irish business, has secured $60 million.
Vista stated that it anticipates the transaction to completion before the end of 2022, at which point Avalara will become a privately held firm, but shareholder and regulatory approval is still pending.
Prior to this, the investment company acquired a controlling share in BetterCloud Inc., a platform developer that aids businesses in managing the software-as-a-service programs utilized by their employees. Earlier, Citrix Systems Inc. was purchased by Vista Equity Partners and a number of other investors for $16.5 billion.