Editor’s note: Rick Smith is editor and cofounder of WRAL TechWire, which launched in 2002. A series of stories TechWire has published about SAS and the Broadcom story as well as earlier developments are embedded in this post.
CARY – Just because SAS owner and Chief Executive Officer Jim Goodnight told employees via email Tuesday that the global software firm isn’t for sale doesn’t mean he won’t pursue other options to make some kind of deal to boost his fortune and that of fellow cofounder and minority owner John Sall. And to expect Goodnight not to find some way to shake the firm out of a flat-line revenue streak stretching five years now is to underestimate him as a leader and owner.
So say several executives who have worked for SAS and have talked to employees who by many accounts were mortified that Goodnight would sell out to Broadcom. That company has a reputation for acquiring and then ripping out expenses (such as workers) at acquisitions.
Rick Smith, WRAL TechWire’s editor and a cofounder, writes The Skinny.
One former exec says Goodnight issued his “not for sale” email to staffers in order to stop erosion of morale – which plummeted among employees who feared a deal. News about a possible Broadcom by broke on Monday via the Wall Street Journal.
But Goodnight “can change on a dime,” one exec notes, and he could change his mind at any time. After all, he owns two thirds of the company (Sall the other third). He’s also a “very smart guy” whom people can underestimate due to a folksy persona that masks a drive which made SAS a company worth as much as $20 billion and him a multi-billionaire, another exec says.
“Jim stated that SAS is not for sale, which in my opinion leaves the door open for any other party to reach out to SAS and make an unsolicited offer, as was the case with Broadcom,” adds another exec.
Goodnight says SAS not for sale; Broadcom talks over, says report
So what are some options?
- Sell a portion of the company to a private equity firm. Cash is abundant in the PE sector and SAS says it remains profitable with revenues around $3 billion a year.
“In regards to your questions as to whether Jim would sell part of the company to a PE firm, like Epic Games did, I would rate that at a higher possibility than SAS using the SPAC route to do an IPO,” one former executive said.
Epic – a neighbor to SAS – raised hundreds of millions of dollars by selling a minority stake (some 40%) to China tech giant Tencent in 2013 and made a lot of employees very rich, including now-billionaire Tim Sweeney. Epic later went out and raised more than $2 billion in private equity and is a “unicorn” – highly-valued company worth close to $20 billion, based on media reports.
A Broadcom buy of SAS lands Wall Street support – but one says cuts are likely
Interestingly, the Broadcom deal valued SAS at between $15 billion and $20 billion.
- Go the SPAC route to become a public company. SPAC stands for “special purpose acquisition company,” also known as a “blank check company”, which is defined as “a shell corporation listed on a stock exchange with the purpose of acquiring a private company, thus making it public without going through the traditional initial public offering process.” Triangle biotech Humacyte is going the SPAC way.
While possible, two of the execs who spoke with WRAL TechWire downplay that option.
“I don’t think it’s likely SAS would do a SPAC deal to go public,” says veteran tech attorney Jim Verdonik who has handled numerous IPos and mergers over the years. “SPACs are a trend. Trends are risky.”
Added another: “The IPO issue has always been an interesting one. [Goodnight] has no reason to take the company public. The only reason to do so would be to raise capital. He does not need the money. The next few generations will not need the money either. Go public, give up control and start answering to Wall Street. Not something that he would want to do.”
- But there is another way to go public and be able to issue shares, perhaps rewarding employees with a chance at sharing in a buyout as have such firms as Red Hat and the stock options cashed in when the Raleigh software and services firm sold to IBM for $34 billion: Buy an existing publicly traded firm.
“SAS can easily go public another way if they want,” Verdonik notes. “More likely than a SPAC deal is that SAS might just buy a public company it thinks they has a synergistic business. SAS is big enough to do that.
Attorney’s warning on SAS: If Goodnight sells he can’t protect his legacy
“Then, SAS woold be public and calling the shots about how the joint company operates.”
- A merger/sale with another tech firm in which Goodnight shares a vision.
“I could see him selling out to another software company that he felt respected what he had built. He needs his accomplishments respected and acknowledged,” says an exec who has known Goodnight for years.
“I had told a couple of people that Broadcom deal was not a done deal until it crossed the finish line. I guarantee he did not like it being exposed and he did not like the commentary around the culture being over. He is very proud of what he has built. Now, it will be very hard for any public entity to guarantee the preservation of the SAS culture and lifestyle. The acquiring company will be under pressure to cut out what is seen as excessive. That is the culture. One in the same.”
- Use the Broadcom story to excite interest among other potential buyers or investors.
Which side – Goodnight/SAS or Broadcom – leaked talk about a deal to The Wall Street Journal – remains unknown. Execs talking to TechWire ruled out neither as the leaker.
One exec is of the opinion that someone at SAS leaked the talks in order to spark a “pony race” and get other firms – perhaps Microsoft or Amazon, Apple or Google – interested.
“I suspect that Jim was hoping the unofficial leak of the SAS-Broadcom conversations would drive one of SAS’ mega partners (IBM, MSFT, AWS, etc.) to make a superior offer based on a strategic multiplier instead of an economic multiplier used by Broadcom,” he says. “Time will tell whether this will occur.”
If Goodnight sells SAS, here’s the company he should sell to …
Goodnight himself years ago floated the idea he’d sell the company for $20 billion. But that was well before SAS hit the 5-year growth struggle.
“From time to time over the years SAS has either encouraged IPO or buyout rumors or at least not killed them,” Verdonik points out . “Sometimes, a company that intends to go public has a very public flirtation with a buyer, who they then publicly spurn.
“Kind of like a Prom Queen playing off one suitor against the others to generate interest from someone she really likes.”
But a third exec says he thinks Broadcom leaked – and Goodnight got mad.
“I believe the deal as it was structured with Broadcom fell through. Knowing Jim, he probably did not appreciate the leak and then became very uncomfortable with the commentary in the media regarding layoffs, end of the culture,” he points out. “He cares a lot about what people think of him. He would not want to disappoint the employees. I can imagine what the mood was like on campus when the story broke.”
What next?
Even with Broadcom off the table, at least for now, Goodnight has decisions to make. He’s 78 years old with no heir apparent other than Sall, who is 73. Their families are not deeply involved with SAS for the most part, according to these execs.
If Goodnight were to be stricken with illness or die, SAS says there is a succession plan. But even that doesn’t answer the big question: next steps.
“He still has a big issue regarding what to do next. He still has not been able to turn over the reins to someone who could run it and keep it private,” one exec explains. “He has three children, one of which is involved in the business, Susan Ellis[ Brand Director at SAS]. Like her father, she cares about the people associated with the business and would have a hard time seeing the company gutted.”
The state of SAS: After 5 years of flat revenue, growth may be returning in 2021
Earlier this year, SAS launched a new branding campaign and unveiled a partnership with Microsoft that provides SAS access to that tech giant’s mammoth sales channel. Both moves reflect Goodnight’s commitment to jumpstarting growth. And sales executives have said they see “momentum.”
But SAS remains without a formal No. 2 following the departure of Oliver Schabenberger last December. He has not been replaced. Which means the day-to-day pressure as well as strategic moves remain in Goodnight’s hands.
“If [Goodnight] wants to keep it as is, he will need to keep it private. That would mean he would have to find someone to run the company that he can trust,” an exec said. “I imagine he does not like the word ‘successor.’ To him that would mean he is no longer in control. It would have to be someone he could work with. And, I believe one of his children would need to continue to be involved.”
Cloud, Microsoft are driving growth, say SAS executives in laying out 2021 agenda
