British investors often complain when home-grown tech companies are bought off the London market and delivered into the hands of private equity. That’s not the case with Blue Prism (PRSM). Earlier this year, the group’s largest investors led by Jupiter Asset Management suggested that the directors should begin looking for a buyer and, after a four month search, the robotics processing company has confirmed an all-cash offer which values the business at £1.1bn.
Private equity is surely the best place for Blue Prism, which has been burning through cash at an alarming rate as it attempts to keep its technology relevant in the fast moving world of robotics. The company’s closest peers are US-based UiPath and Automation Anywhere, both of which have completed multiple private fundraising rounds which have allowed them to re-invest heavily in their technology. In 2020, UiPath invested £109m in research and development, equivalent to 18 per cent of its sales. Blue Prism invested just £17m or 12 per cent of its sales.
Public fundraising rounds - the most recent of which was completed in April 2020 - have increasingly drawn the ire of Blue Prism’s investors. That’s fair enough. The company’s investors have repeatedly had to cough up for cash which is more likely to be spent on the company’s well remunerated sales team than ongoing development of the business. Sales and marketing employees accounted for more than half the staff in 2020 and absorbed £99m of operating expenditure - more than five times the amount spent on R&D.
The company’s reliance on aggressive sales and marketing to expand the business was especially problematic throughout 2020 as lockdowns prevented the wining and dining of new customers. In the year, the company’s 515 sales staff managed to win just 499 new customers between them.
And so an all cash acquisition seems like the best outcome for the company’s shareholders. True, investors who bought their shares in early 2020 at 1700p, were diluted in the £100m fundraising at 1100p and are now being bought out at 1125p have every right to be miffed. Indeed, it is likely to only be those investors who bought their shares well before the company hit its all time high of 2280p in 2018 who will have made any money on Blue Prism. But the downward spiral of lack of investment leading to poor sales has started. A buyout seems the only way to stem the tide. Investors should accept the deal.