Article written and analysis by Micha Katz of Aream.co based of data from Latka.
Claudio Erba used to be a university professor in Italy. He needed a way to share handouts with students digitally, so he built an open source tool for that.
In 2005, corporate customers started ringing him to buy his software and Docebo was born.
Fast forward to 2019, Docebo has grown into a global cloud-based Learning Management System (LMS) helping the likes of Uber, Starbucks and Docusign increase employee performance and engagement.
“We’ve Passed $26m in Revenue and 1,400 Customers”
Claudio came on the show last year to talk about his journey: in mid-2018 Docebo was doing ~$26m in ARR from 1,400 customers. Average ACV was $20k and CAC payback was 12 months.
The business had grown efficiently taking only $10m of primary capital over the years, and was close to breakeven.
A few days ago, Docebo announced that it had filed a preliminary prospectus for an IPO in Canada. While we wait for the detailed prospectus, let’s take a guess at what we can expect from Docebo’s listing.
Back in mid-2018, Claudio was expecting a 68% top line growth for the year to come. Let’s assume 60%, which would bring current ARR north of $40m, and extrapolate that up to December 2019, at which point the business should hit $45m in ARR.
Given the growth rate, full year revenue for FY2019 should end up somewhere around $36-38m.
What can Docebo expect in terms of valuation at IPO?
Listed Edtech / LMS SaaS peers such as Instructure, Learning Technologies Group and Pluralsight are trading between 6 and 7x 2019E revenue.
These are much larger businesses still showing solid growth as well as superior retention rates (120%+ net revenue retention for Pluralsight, vs. 97% for Docebo), which should justify a premium to Docebo’s future multiple.
Recent small cap M&A transactions in the space include acquisitions made by Learning Technologies Group (Breezy HR for 8x revenue and Rustici Software for 6x revenue) as well as Adtelem’s acquisition of OnCourse (4x revenue).
Who Gets Rich?
Docebo’s majority shareholder, Canadian private equity firm Klass Capital, certainly knows how to time an IPO on the Toronto Stock Exchange, having successfully listed restaurant chain Freshii two years ago. The broader public SaaS universe is currently trading at historic highs and 2019 has been a very strong year for software IPOs.
Docebo is clearly an attractive asset: the business has quickly gained market share in the $20bn+ global e-learning market. It has successfully scaled internationally while remaining capital efficient.
Lastly, its product is widely acclaimed and featured in the top right hand corner of G2 Crowd’s Corporate LMS software grid, comparing favorably with enterprise e-learning suites from Adobe, Paycom, SAP or Cornerstone OnDemand.
Docebo Likely IPO At 5x, $180m Enterprise Value Day 1
Still, with full year revenue most likely to be below $40m, Docebo will end up at the (very) small cap end of the market. This cohort consistently gets valued at a discount.
Based on where large cap LMS SaaS stocks are trading (6 to 7x), let’s guess that Docebo will IPO at 5x 2019e revenue, i.e. $180-200m Enterprise Value.
No doubt this will still be a fantastic outcome for Claudio Erba and Kass Capital.
Is The IPO A Bluff, Acquisition Instead?
One final thought. Being a small cap software stock on the Toronto stock exchange will certainly come with drawbacks: limited share liquidity, little analyst coverage, investor community unlikely to be very SaaS-savvy, pressure to deliver on quarterly profits instead of investing in long term vision and growth.
While Claudio clearly rejected the idea of a sale while on the show (but what else would he say in an interview:), it wouldn’t come as a surprise if Klass Capital would be open to an M&A exit. Klass bought a majority stake in Docebo in November 2015 when the business was most probably doing less than $5m of topline. Having scaled it to north to $30m in annual revenue with only $10m of primary capital invested is a great achievement and the assurance of an awesome return after less than four years of ownership.
Given Docebo’s size, the company is not very likely to receive bids from large cap HR software vendors (ADP, SAP, Workday, Cornerstone OnDemand etc.) as these typically look for “line of business” assets with $100m+ in revenue.
However, Docebo is certainly going to be an attractive target for mid-market HCM software players, many of which are private equity backed. These vendors are racing to gain scale beyond $100-150m of top line (a key driver of premium valuation), and could arguably value Docebo at a higher multiple than Canadian pension funds and other IPO investors.
SaaS companies such as Qualtrics, Adaptive Insight or AppDynamics were acquired in the days preceding their IPOs. Filing a prospectus and running an IPO roadshow is in fact a powerful way to create urgency and a sense of competitive tension around an asset. Could Docebo be having M&A conversations in parallel to its IPO track? That would definitely be the right thing to do to maximise value and optionality.