Lightspeed Commerce Inc. LSPD-T stock continued to rise Thursday after news that the company is exploring a sale, while analysts identified a long list of potential suitors for the Montreal point-of-sale software provider.
Shares of Lightspeed jumped 13 per cent Wednesday after Reuters reported the company had hired JPMorgan Chase & Co. to explore its options, including soliciting potential takeover offers. Lightspeed confirmed that night it was conducting a strategic review “with a view to realizing its full potential,” and would consider a range of alternatives.
A source familiar with the matter said Lightspeed had already signed non-disclosure agreements with a number of potential strategic buyers – software companies that compete in the same space and that could realize deeper cost savings through synergies than private equity buyers. In addition, the source said chief executive officer and founder Dax Dasilva would welcome a deal that would see him give up leadership.
Mr. Dasilva previously left the top job in 2022 to pursue other interests, including nature conservation and documentary film production, before returning to the helm this year. He said after rejoining that he was “open to discussions” about a potential takeover. A company spokeswoman said Lightspeed would not comment further on anything related to the strategic review.
Lightspeed stock closed up a further 4.6 per cent Thursday on the Toronto Stock Exchange. The stock also trades in New York, and BMO Capital Markets analyst Thanos Moschopoulos raised his target stock price to US$20 a share from US$18. The increase was “based on our view that the stock could be worth considerably more on a takeout,” he said in a research note, citing Lightspeed’s size and scale, its depressed valuation and future earnings potential.
A slew of Canadian technology companies have left the public markets in the past two years, including nine of the 20 companies that went public on the TSX during the COVID-19 pandemic. Lightspeed went public at $16 a share in early 2019.
The list of potential suitors “is likely broad,” National Bank of Canada Financial Markets analyst Richard Tse said in a note, and could include legacy players including Fiserv Inc.-owned Clover – which recently indicated it is open to all options to grow shareholder value including acquisitions – as well as NCR Voyix Corp., Global Payments Inc. and Intuit Inc.
Acquisitive publicly traded cloud-software rival Shift4 Payments Inc. could be interested, Bank of Nova Scotia analyst Kevin Krishnaratne said in a note, as well as private-equity-backed payment-processing giant Worldpay Group PLC. He speculated that Lightspeed’s larger rival Toast Inc. wouldn’t be a strong strategic fit given Toast’s focus on the hospitality sector, and said its acquisitions typically centre on beefing up its technology or product offerings.
Other possible suitors, analysts said, could include digital companies in the payments business such as Square owner Block Inc. and PayPal Holdings Inc. Ottawa-based e-commerce software giant Shopify Inc. has been making its own push to sell point-of-sale products to physical retailers as well.
Private equity firms, which have actively pursued software companies in recent years, are also likely in the mix. ATB Capital Markets analyst Martin Toner said in a note that they could look to split up Lightspeed and sell its hospitality business, possibly to Toast, while keeping its retail business.
Lightspeed has about 165,000 customers in the retail, hospitality, restaurant and golf businesses, and handles more than US$90-billion annually of gross transaction volume over its platform. That, Mr. Moschopoulos said, “makes it one of the largest assets in the space.” Lightspeed’s revenue in its most recent quarter increased by 27 per cent year-over-year.
The company is undergoing a strategic shift, focusing on serving larger customers with US$500,000-plus in annual revenues while shedding smaller customers, and pushing users to adopt its payments offering, which brings higher fees. While the payments initiative has met expectations and increased average revenues per customer, the loss of many smaller clients has crimped subscription-revenue growth.
The payments push has enabled Lightspeed to generate adjusted operating profits for the past few quarters, although it still posted a net loss of US$164-million last year and is expected to be in the red this year and next. Mr. Tse said Lightspeed will be challenged to grow merchant locations once it “harvests its current growth spurt” from payments. The company generated US$909.3-million in revenue in its fiscal year ended March 31, and it is expected to top US$1-billion this year.
Amid its strategic shift, Lightspeed has struggled to balance growth and profitability, and to win back investors. Jean Paul Chauvet, then the CEO, was replaced by Mr. Dasilva early this year after telling analysts that increased investments in sales wouldn’t pay off for a few quarters and that the company was open to making acquisitions after a two-year hiatus, sparking a stock sell-off. One of Mr. Dasilva’s first moves as CEO was to cut 10 per cent of jobs and announce a stock buyback.