Clearwater Analytics Holdings Inc. (CWAN) shares soared 19.43% to $22.99 in after-hours trading Friday, propelled by news that the investment and accounting software maker might be heading back to private equity ownership.
According to a Bloomberg report citing people familiar with the matter, Warburg Pincus and Permira are in discussions to acquire Clearwater. The twist? These are the same two private equity firms that helped take the company public just four years ago. A deal could materialize within weeks, though the purchase price under consideration wasn't immediately available.
Neither Warburg Pincus, Permira, nor Clearwater Analytics responded to requests for comment.
The Potential Take-Private Transaction
This wasn't entirely out of the blue. Earlier this week, Clearwater shares got a lift after Bloomberg reported that the company had engaged advisers to gauge interest from prospective buyers. Now it appears those talks have progressed to something more concrete.
Warburg and Permira originally invested in Clearwater back in 2020. The following year, they were among the private equity backers when the company went public, raising $621 million in its IPO, including over-allotment shares. Now they're circling back, potentially betting that the market has undervalued what they helped build.
A Stock Under Pressure Despite Strong Fundamentals
The timing is interesting. Clearwater shares have dropped more than 30% so far this year, giving the company a market cap of approximately $5.7 billion. The stock closed at $19.25 on Friday before the after-hours surge.
Yet the underlying business appears healthy. The Boise, Idaho-based company, founded in 2004, reported impressive third-quarter results this month. Revenue jumped 77% year-over-year to $205.1 million, while adjusted EBITDA climbed 84% to about $71 million.
So why the disconnect? Market data paints a complicated picture. While Clearwater's growth score is exceptionally strong at 99.53, suggesting significant expansion potential, its momentum and value scores lag considerably at 11.70 and 0.02 respectively. That indicates investors have been hesitant about recent performance and find the valuation challenging to justify. Price trends show bullish signals only in the short term, with medium and long-term indicators pointing the other way.
For Warburg and Permira, this might represent an opportunity to scoop up a fast-growing software company at what they perceive as a discount, free from the quarterly scrutiny of public markets. If a deal comes together, it would be another example of private equity firms taking advantage of valuation dips to bring former portfolio companies back into the fold.
