Citrix Takeover Chatter Intensifies
Citrix (CTXS) shares spiked 7% on Monday, March 13, as reports circulated that the company is exploring a sale. The company has been the target of several changes over the last two years, headlined by activist Elliott Management pushing for board seats, leadership changes, the spin-off of the GoTo family of products, and potentially an outright sale of the core Citrix business. On the latter point, it appears those talks have been renewed, with news outlet Reuters reporting private equity firm Thoma Bravo is among several PE shops looking at a potential Citrix acquisition. Bloomberg is reporting that Citrix has retained Goldman Sachs to explore a sale. We think this outcome would be a best-case scenario for Citrix shareholders. We are maintaining our narrow moat rating and $64 fair value estimate (as no deal has come to fruition at this stage), and we think the stock looks meaningfully overvalued.
Rumors of a Citrix takeover first surfaced in 2015 when Elliott Management took an activist stake in the company, though buyers for Citrix’s core business failed to materialize. We think the core Citrix business faces meaningful long-term challenges, as desktop virtualization has had limited market penetration and the firm’s NetScaler business faces stiff competition from F5 Networks, among others. Still, the economics of desktop virtualization contracts remain beneficial, and we think the business makes sense in the hands of private equity investors that can milk the legacy business for cash. As a standalone public company, however, we think Citrix will struggle to grow its top-line, and the firm has largely extracted as much margin expansion as we would reasonably expect over the last few years (non-GAAP operating margins expanded 900 basis points in the last two years to 30.8% in fiscal 2016).
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