Ottawa-based supply-chain management software provider Kinaxis Inc. KXS-T should put itself up for sale as soon as possible, one of the company’s shareholders is urging, though a far larger investor in the company disagrees.
Daventry Group LP, an investment firm that owns roughly 1.4 per cent of Kinaxis, said in a Monday letter to the company’s board of directors that years of “self-inflicted and avoidable” mistakes have left Kinaxis “dramatically undervalued” relative to its peers.
The call for a sale is being made less than two weeks after Kinaxis chief executive officer John Sicard announced plans to retire at the end of this year and chief sales officer Claire Rychlewski abruptly left the company after just five months in that role.
The “massive vacuum in leadership” created by the surprise executive departures makes “the immediate initiation of a sale process imperative,” the letter signed by Daventry managing partner Andrew Dantzig says.
Kinaxis CEO John Sicard in his office in Kanata, Ont., on Dec. 14, 2018.Justin Tang/The Globe and Mail
However, Montreal-based investment manager Jarislowsky Fraser Ltd., which owns roughly 11 per cent of Kinaxis, believes the company is on the cusp of seeing accelerating revenue growth and better profitability as a standalone entity.
“As a long-time shareholder of Kinaxis and currently one of its largest, Jarislowsky Fraser firmly believes that long-term shareholders would benefit from holding the shares of this global leader rather than seeking an opportunistic bid during a management transition,” said Charles Nadim, the investor’s head of research and Canadian equities portfolio manager, in an e-mailed statement.
Daventry, meanwhile, argues the Kinaxis board’s “recent hiring track record makes it abundantly clear that it cannot be trusted to install the next generation of Kinaxis’s leadership at this critical inflection point for the Company.”
Paul Carreiro, Anne Robinson, Margaret Franco and David Anderson – the company’s former president, chief strategy officer, chief marketing officer and vice-president of key accounts – have all left Kinaxis since the start of this year, which Mr. Dantzig’s letter says was “a shocking amount of turnover in key roles.”
Kinaxis, which counts some of the world’s largest corporations, such as Procter & Gamble, IBM, Lockheed Martin and Volvo AB among its clients, released a statement on Monday acknowledging receipt of the letter and promising the board will review its contents. Spokesperson Belinda Thomas declined to comment further.
In his letter, Mr. Dantzig said Kinaxis rivals such as Manhattan Associates, Descartes Group and SPS Commerce have all seen their share prices rise by between 80 and 150 per cent from the end of 2020 through this past August, while Kinaxis shares have fallen by nearly 20 per cent over the same period.
That underperformance, he argues in the letter, is the result of a poorly executed expansion strategy. In the software industry, expansion strategies generally involve cross selling and upselling to existing customers.
“At Kinaxis, amazingly, the expansion failure apparently did not stem from customers not wanting to buy additional products, but rather because prior to 2023, the Company did not have a dedicated expansion team in place to sell into the existing customer base,” the letter says. “Out of over 1,500 employees at the start of 2023, Kinaxis only had four individuals handling expansion deals!”
The letter adds: “Hiring a bank to initiate a sale process would reveal an enormous amount of interest from both strategic and financial acquirers that could allow Kinaxis to immediately close the valuation gap with its peers.”
In a note to clients published on Aug. 28, the day after Kinaxis announced the retirement of Mr. Sicard and the departure of Ms. Rychlewski, BMO Capital Markets analyst Thanos Moschopoulos said the uncertainty created by the CEO transition has “substantially increased” the possibility of Kinaxis being a potential acquisition target.
“There is a large disconnect between KXS’s current valuation and its value to a potential strategic or financial buyer (of which we believe there could be several),” Mr. Moschopoulos said. “Hostile deals are uncommon in tech, and, until now, our view was that KXS would have likely been unreceptive to an offer.
“However, we believe the CEO transition and the selloff in the stock might motivate a potential buyer to consider an opportunistic bid, and might conceivably make KXS more receptive to a potential offer.”