The software sector welcomes a "catalyst"! Silver Lake Capital acquisition rumors spark the market, Workday (WDAY.US) surges nearly 18% in one day

According to Jinse Finance APP, it has been reported that private equity giant Silver Lake is in talks to acquire human resources software maker Workday (WDAY.US), potentially creating one of the largest software acquisitions in history. In response to this news, Workday shares surged as much as 30% during trading on Thursday, triggering several temporary trading halts, and ultimately closed up nearly 18%, marking its best single-day performance since 2016. The company's current market capitalization is approximately $51 billion.

Sources familiar with the matter said that the two parties have been negotiating the potential deal for several months, and discussions are still ongoing, with no guarantee that a final agreement will be reached. One of the sources revealed that Silver Lake may bring in additional investors to co-finance the deal. Last year, Silver Lake teamed up with the Saudi Public Investment Fund (PIF) and Affinity Partners to take game developer Electronic Arts private at a valuation of about $55 billion.

Jefferies analyst Brent Thill commented, “Workday CEO Aneel Bhusri has a close personal relationship with Silver Lake’s Egon Durban. We believe this deal makes logical sense and reflects the fact that the software sector had indeed been heavily beaten down previously.”

Before Thursday's news, Workday's stock had fallen about 15% cumulatively this year, with a drop of over 40% from its 2024 high. The expanded technology software sector ETF - iShares (IGV.US) rose more than 3% on Thursday, but is up less than 1% year-to-date.

AI disruption concerns restrain large-scale M&A as Silver Lake moves against the trend

This year, due to the impact of artificial intelligence (AI) technology on traditional software business models, private equity funds have generally been cautious about large software acquisitions. The uncertainties brought by AI have made it more difficult to assess the future growth and valuations of traditional software companies, resulting in very few large software privatization deals so far this year.

In January, Hg Capital agreed to take financial management software company OneStream private for about $6.4 billion, which was already one of the bigger software deals of the year. In comparison, the potential Workday transaction would be much larger, serving as a key indicator of private equity’s interest in traditional software assets amid the AI-driven industry transformation. Previously, Thoma Bravo also reached an agreement to acquire payroll software provider Dayforce for about $12.3 billion.

Silver Lake has a rich investment history in the technology and software sectors, with prior investments in computer manufacturer Dell, cloud software company VMware, and experience management software company Qualtrics.

Workday posts stable results during transition, AI business offers new growth momentum

Workday was founded in 2005 by former PeopleSoft executives Aneel Bhusri and David Duffield and went public in 2012. The company provides cloud-based human resources, payroll, financial, expense, and planning software. Workday has more than 11,500 customers worldwide, including Netflix, U.S. Bank, and others.

In February this year, against the backdrop of escalating concerns about AI disruption of traditional business software companies, co-founder Bhusri returned as Workday’s CEO, succeeding Carl Eschenbach.

It is noteworthy that although AI anxiety once suppressed valuations, Workday itself has not been left behind by the AI wave. In May, Workday reported better-than-expected first-quarter results and raised its full-year profit margin guidance, leveraging growth momentum from its AI business.

Data shows that for the fiscal quarter ending April 30, Workday’s revenue grew 13% year-on-year to $2.54 billion, with adjusted earnings per share of $2.66 and an adjusted operating margin of 30.6%. Subscription revenue grew 14.3% year-on-year to $2.354 billion. Annualized revenue from agency AI solutions has already approached $500 million.