Company Profiles

Software Company E2open Closes to the Public

Image Group photo
E2open CEO Mark Woodward (center) and other executives celebrate the company's IPO on the Nasdaq on July 26, 2012.

Less than three years after going public, E2open, Inc., a provider of cloud-based software solutions, is acquired by private-equity firm Insight Venture Partners. 

"I'm all about creating a company that's a 25-30% grower, consistently," CEO Mark Woodward told Forbes Magazine in a January 2013 interview that took place just six months after his company, E2open, went public on the Nasdaq.  But rather than create a consistent grower, Mr. Woodward had created a company that was consistently missing its growth and earnings targets leading shareholders to head for the exits as hastily as they had entered. 

E2open, a $71.2 million cloud-based software provider for supply-chain management based in Foster City, California, sold out to Insight Venture Partners, a global private-equity and venture capital firm, on March 26, 2015.  Basically, E2open folded less than three years after its initial public offering (IPO) on the Nasdaq in July 2012.  Insight Venture Partners paid $273 million for the company, a 41% premium over E2open's closing stock price on February 4th, 2015.

"After a comprehensive evaluation and review of strategic alternatives designed to enhance shareholder value, we are confident that this agreement represents a favorable outcome for our shareholders," Mr. Woodward said in a company press release.  Ryan Hinkle, Managing Director of Insight Venture Partners, said "We are excited to support the continued growth of E2open." 

The rapid rise and descent in market value (see accompanying graph) for a publicly-traded company underscores the market-altering effects that six straight years of near-zero interst rates by the Federal Reserve have had on the stock market.  E2open is a company that in fiscal year ended February 28, 2014, its last annual filing, reported a $25 million loss on annual revenue of just $71 million yet had a market capitalization of $800 million for a market cap-to-revenue ratio of 11.25 to 1.00. 

By November 2014, E2open's stock price had sunk to $6.83 per share with a total market capitalization of $197 million.  The stock would plunge even further in January 2015 after the company told investors that it was expecting a net loss of 22 cents to 20 cents per share while analysts had forecast a loss of 16 cents per share.  The sinking stock price and loss of equity capital is devestating for a company that is not profitable and not generating enough cash from operations to cover expenses.

For 2013, E2open posted a CSI score of 3.60, which represents low credit standards.  The CSI, or Credit Standards Index, rates companies based on five scoring factors: bad debt allowance (BDA), days sales outstanding (DSO), operating cash as a percent of revenue, current ratio and debts-to-assets ratio.  1.00 is the highest possible score while 5.00 is the lowest possible.  E2open scored worse in DSO at 112.69 days and operating cash at minus 16.4%.

Bank of America Merrill Lynch was the chief underwriter for the IPO along with Pacific Crest Securities, Canaccord Genuity and Needham.  E2open's customers are mostly large multinational companies with global supply chains such as Boeing, Cisco, Dell, GE, Flextronics, IBM, Motorola and Vodafone.

In the midst of the IPO excitement, many analysts took an overly optimistic view of E2open.  Canaccord Genuity, one of the underwriters, wrote: "We believe E2open is in the early stages of building out a substantial presence in supply chain visibility.  If so, the company should be able to deliver 20-25% revenue growth and FCF margins that scale to 25%+ within 5-7 years."  As expected, Canaccord rated E2open a buy.  At the time of the IPO, analysts at Pacific Crest and William Blair rated E2open as "outperform."  Bank of America issued a "buy" rating. 

On January 15th, the Wall Street Journal reported that E2open was looking for a buyer.  Interestingly, a noted supply-chain publication immediately disputed that report.  Three weeks later, E2open announced it had agreed to be acquired by Insight.