datto sets initial ipo price range, indicating a valuation of around $4b

Datto, described by TechCrunch as a provider of backup and disaster recovery solutions, recently submitted its initial public offering paperwork. This week, the company announced the anticipated price range for its stock market debut.

The company, which is supported by Vista Equity Partners, was acquired by the private equity firm in 2017. Vista Equity Partners has been in the headlines recently for various reasons, including concerns regarding financial practices – specifically, allegations of tax avoidance and associated penalties – but developments surrounding Datto represent a positive outcome.

Vista Equity Partners initially purchased Datto for approximately $1.5 billion and is now positioned to realize a substantial profit from its investment through the upcoming IPO.

According to Datto’s most recent S-1 filing, the company is aiming for a share price between $24 and $27. Here's a breakdown of the figures:

• Total shares available after the IPO, excluding underwriter options: 157,548,740 shares
• Total shares available after the IPO, including underwriter options: 160,848,740
• Maximum potential valuation, excluding underwriter options: $4.25 billion
• Maximum potential valuation, including underwriter options: $4.34 billion

These valuations represent a significant increase compared to the $1.5 billion Vista Equity Partners reportedly paid for Datto.

What has enabled Datto to achieve such substantial growth in recent years? Financially, the company has reached an annual revenue run rate of approximately $500 million, based on its financial performance in the first and second quarters of 2020. This results in a revenue multiple of under 10x, considering the maximum anticipated IPO price.

This pricing appears reasonable. Datto’s growth rate is moderate, increasing by 16% from the first half of 2019 to the first half of 2020. However, the company has recently achieved profitability, which strengthens its valuation. Furthermore, revenue multiples for software companies have generally increased between 2017 and 2020, and combined with Datto’s growth since 2017, this has significantly increased its value above the original sale price.

This is a favorable situation for Vista Equity Partners, assuming they encounter no tax-related issues concerning these returns. Further updates on Datto’s pricing and market debut will be provided as they become available.