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Announcement: Moody's says Citrix's Wrike acquisition adds work management capabilities but with significant leverage; no immediate ratings impact
Global Credit Research - 20 Jan 2021
New York, January 20, 2021 -- Moody's Investors Service, ("Moody's") said Citrix Systems, Inc.'s ("Citrix") recent announcement that it had entered into an agreement to acquire Wrike for $2.25 billion does not impact the company's ratings at this time. Although limited details have been disclosed about the financing or capital structure going forward, Citrix indicated that Wrike would be funded with a combination of cash and debt. Citrix also stated that it plans to return to historical leverage levels within 24 months of close and expressed a commitment to its investment grade credit ratings. The company produces substantial free cash flow after dividends, which Moody's projects will exceed $900 million in 2021, and could repay a significant amount of debt over the next two years if it significantly reduces share buyback activity and additional acquisitions. If it appears that the target leverage will not be achieved by the end of 2023, the Baa3 senior unsecured rating could face downward pressure.
The Wrike acquisition adds a fast growing set of work management and related collaboration tools to Citrix's virtual workspace and network software and appliances. However, Wrike's products are largely outside of Citrix's current line-up and it is not immediately clear what will be the financial synergies of merging the two companies. Nevertheless, both Wrike's and Citrix's Workspace products should benefit as more employees work remotely with Wrike's products being integrated into Citrix's Workspace offerings. Citrix sold a previous collaboration product line, GoToMeeting to LogMeIn in 2017. GoToMeeting was a video conferencing service and unrelated to Wrike's collaboration tools.
Leverage as of September 30, 2020 was approximately 2.7x and could reach 5x at close of the transaction depending on the amount of new debt used. Citrix has the ability and potential to paydown debt and reduce leverage to historic levels within two years of closing if it directs the vast majority of its cash flow toward debt repayment. Although Citrix generates robust levels of free cash flow (approximately $837 million of free cash flow after dividends in the LTM period ended September 30, 2020) and maintains an ample cash balances ($925 million as of September 30, 2020), the company has historically used a large portion to fund share buybacks. Without rapid debt repayment and a sizable reduction of share repurchases, leverage could remain at levels well above our downgrade triggers for an extended period of time. Any deviation from Citrix' public commitment to reduce leverage over the stated timetable would likely pressure the overall credit profile.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.
Matthew B. Jones VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Stephen Sohn Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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