Glazer Capital Details its Opposition to the Proposed Acquisition of Squarespace by Permira

Rhea-AI Summary

Glazer Capital, owning 5.4% of Squarespace's (NYSE: SQSP) minority shares, opposes the proposed $44.00 per share acquisition by Permira. They argue that:

1. The fairness opinion omitted key valuation analyses, potentially undervaluing Squarespace.

2. The acquisition process favored the controlling shareholders and Permira.

3. Permira received exclusive information about the $400 million Tock sale.

4. The 15% premium is inadequate compared to competitors' stock appreciation.

Glazer Capital intends to vote against the acquisition, citing concerns about the process fairness and insufficient merger consideration. They urge the Board to reconsider its recommendation.

Positive

• Squarespace agreed to sell Tock to American Express for $400 million, a 99.5% premium to its recent carrying value
• The $400 million Tock sale represents approximately $2.65 per fully diluted Squarespace share (pre-tax)

Negative

• Glazer Capital, owning 5.4% of minority shares, opposes the $44.00 per share acquisition by Permira
• The 15% unaffected premium is considered inadequate by Glazer Capital
• Concerns raised about the fairness and integrity of the sales process
• Potential undervaluation of Squarespace due to omitted analyses in the fairness opinion
• Allegations of a flawed process favoring controlling shareholders and Permira
• Exclusive information about the Tock sale provided only to Permira, raising fairness concerns

Insights

Financial Analyst

The proposed acquisition of Squarespace by Permira at $44.00 per share appears to significantly undervalue the company. Key points:

• The 15% premium is well below industry averages for similar transactions, which typically range from 29% to 33%.
• Precedent software transactions suggest a fair value range of $40.43 to $105.48 per share, with the current offer below the 25th percentile.
• The DCF analysis using the company's own 11% WACC implies a substantially higher value than the offer price.
• The $400 million Tock sale, representing $2.65 per share, was not adequately factored into the valuation for other bidders.

These factors, combined with the flawed process favoring insiders, suggest the deal significantly undervalues Squarespace and is not in the best interest of minority shareholders.

Corporate Governance Expert

The acquisition process raises serious governance concerns:

• CEO Anthony Casalena's private meetings with Permira over two years gave them an unfair advantage.
• The special committee was formed late in the process, limiting its effectiveness.
• Casalena's desire to retain control likely deterred potential strategic buyers.
• The compressed timeline for other bidders (<1 month) compared to Permira's 2-year courtship was unfair.
• Critical information about the Tock sale was only shared with Permira after other bidders were eliminated.

These issues suggest a process designed to favor insiders and Permira, potentially at the expense of minority shareholders. The board's failure to ensure a fair, open process is a significant breach of fiduciary duty.

M&A Specialist

The Squarespace acquisition exhibits several red flags in the M&A process:

• Omission of standard valuation methods (premiums paid and precedent transactions) in the fairness opinion, which likely would have supported a higher valuation.
• Use of an inflated 12.5%-14.5% discount rate in the DCF analysis, compared to the company's own 11% WACC.
• Exclusion of strategic buyers due to the CEO's governance demands, potentially limiting higher bids.
• Unequal access to information, particularly regarding the valuable Tock sale.
• A rushed process for all bidders except Permira, the ultimate acquirer.

These factors suggest a process designed to favor a specific outcome rather than maximize shareholder value. The 15% premium appears inadequate given industry standards and recent peer performance.

• Calls $44.00 per Share Merger Consideration Offered by Permira Inadequate

• Considers Industry Standard Methodologies of Transaction Valuation Analysis to Have Been Omitted from Fairness Opinion, Resulting in Significant Undervaluation

• Believes Flawed, Self-Serving Process Was Designed to Benefit Controlling Shareholders and Permira, to the Detriment of Minority Shareholders

• Highlights That the Two "Selected Comps" Singled Out by Special Committee's Financial Advisor Have Appreciated More than Premium Offered by Permira

• Intends to Vote AGAINST the Acquisition at the Upcoming Squarespace Special Meeting

NEW YORK, Aug. 14, 2024 /PRNewswire/ -- Glazer Capital, LLC, a manager of investment funds and separate accounts that collectively beneficially own 2,500,000 shares of Squarespace, Inc. (NYSE: SQSP) common stock, or approximately 5.4% of the shares owned by minority shareholders, today issued an open letter to the Squarespace Board detailing its opposition to the proposed acquisition of Squarespace by Permira Advisers and disclosing its intent to vote against the transaction at the upcoming special meeting of Squarespace shareholders.

The full text of the letter follows below:

August 14, 2024

Squarespace, Inc.
225 Varick Street
12^th Floor
New York, New York 10014
Attention:  Board of Directors

Dear Members of the Board of Directors of Squarespace (the "Board"):

On May 13, 2024, Squarespace, Inc. ("Squarespace" or the "Company") announced that it had entered into a definitive agreement to be acquired by affiliates of Permira Advisers LLC ("Permira"). The Company's founder and CEO, Anthony Casalena, General Atlantic and Accel (collectively, the "Controlling Shareholders" and together with Permira, the "Purchasers") will participate in the transaction by rolling over and/or reinvesting equity. The agreement calls for Squarespace's minority shareholders to receive $44.00 cash (the "Merger Consideration") in exchange for each share of the Company (the "Acquisition"), representing an unaffected premium of approximately 15%—consideration which materially undervalues Squarespace.

Glazer Capital, LLC ("Glazer Capital", "us" or "we") strongly believes that the Merger Consideration is demonstrably inadequate and is the product of a self-serving go-private process engineered by a founder-CEO that presently controls, and desires to retain control over, Squarespace's destiny.  It is also our view that the Acquisition was orchestrated to deliver the Company into the arms of a handpicked private equity consortium. Accordingly, we intend to vote all of our shares against this transaction at the upcoming meeting of Squarespace shareholders.

Glazer Capital contends that, among other things: 1) two key valuation analyses often found in M&A fairness opinions, and which are supportive of a price per share for the Company far greater than $44.00, appear to have been conveniently omitted from Centerview Partners' ("Centerview") fairness opinion (the "Fairness Opinion"), which the special committee of the Board (the "Special Committee") apparently relied upon in determining to recommend the Acquisition to the full Board; 2) the Acquisition was the result of a flawed process designed to benefit the Purchasers – in particular Anthony Casalena – to the detriment of Squarespace's minority shareholders; and 3) Centerview discussed the proposed sale of Tock LLC, a key Squarespace subsidiary, with Permira four days after the final bid deadline, at which point no other bidders remained in the process.

The Special Committee Relied on a Deficient Fairness Opinion

We believe that the Fairness Opinion excluded two key analyses that are most relevant to valuation in a go-private transaction such as the Acquisition. Specifically, the Fairness Opinion failed to include either a premiums paid analysis or a precedent transaction analysis. However, Goldman Sachs, advisor to Permira, did conduct both such analyses, and we believe that they each support a value per share of Squarespace materially higher than $44.00.

Premiums Paid Analysis
Centerview failed to include an analysis of premiums paid in comparable precedent transactions in its Farness Opinion. Goldman Sachs, however, prepared an analysis titled US Related Party Transaction Premia, a portion of which is replicated below.

Table 1: US Related Party Transaction Premia1
Public Transactions > $200M, 2008-2024
	# of Deals	1-Day Premium		Squarespace Implied Price *
13E-3 Take Privates	65	29.1 %		$49.30
Significant Insider Buyout (15-49% Pre-Deal Ownership)	41	33.2 %		$50.87
Minority Squeeze Out (50-95% Pre-Deal Ownership)	50	32.9 %		$50.75

Recent Precedents
		Premium to Unaffected Price		Squarespace Implied Price *
Endeavor		55 %		$59.19
EngageSmart		23 %		$46.97

*  Calculated by Glazer Capital using Squarespace's NYSE closing share price of $38.19 on May 10, 2024 multiplied by the relevant premium.

Glazer Capital believes that Goldman Sachs's broad sample of precedent 13E-3 transactions over a 16-year period supports a price range of $49.30 - $50.87 per share of Squarespace, and that the two recent precedent transactions cited specifically by Goldman Sachs support a price range of $46.97 - $59.19 per share for Squarespace.  In other words, the proposed Merger Consideration is substantially inadequate.

Precedent Transactions Analysis
Centerview also failed to include an analysis of valuation multiples of comparable precedent transactions in its Farness Opinion. Goldman Sachs, however, prepared an analysis titled Selected Public Software Transactions, with an emphasis on what it termed "Sponsor Deals", a portion of which is replicated below.

Table 2: Selected Public Software Transactions ("Sponsor Deals" subset)2
Revenue Multiples in Public Software Transactions >$1Bn with >15% Revenue Growth Since 2019
"Sponsor Deals"   Target Companies	Date Announced	EV / NTM Revenue
Cvent	Mar-2023	6.2x
Coupa	Dec-2022	8.6x
KnowBe4	Oct-2022	11.4x
ForgeRock	Oct-2022	8.4x
UserTesting	Oct-2022	5.1x
Avalara	Aug-2022	8.8x
Ping Identity	Aug-2022	7.7x
Anaplan	Jun-2022	12.8x
Zendesk	Jun-2022	5.5x
SailPoint	Apr-2022	12.9x
Medallia	Jul-2021	10.8x
Proofpoint	Apr-2021	9.1x
Pluralsight	Mar-2021	8.3x
Instructure	Feb-2020	6.2x
Ultimate Software	Feb-2019	8.0x
			Squarespace Implied Price*
	Minimum	5.1x	$40.43
	Maximum	12.9x	$105.48
	25th percentile	6.2x	$49.60
	50th percentile	8.4x	$67.95
	Squarespace Merger Consideration	5.5x *	$44.00

*  Inputs for Squarespace's multiple and implied price calculations sourced by Glazer Capital from Centerview's Special Committee presentation3

Glazer Capital believes that Goldman Sachs's sample of selected public software transactions, particularly its sponsor deals subset, supports a price range of $40.43 – $105.48 per share for Squarespace. The Merger Consideration falls below the 25^th percentile of such precedents. Once again, the Merger Consideration is substantially inadequate.

We question whether Centerview omitted the premiums paid and precedent transactions analyses from its Fairness Opinion because they highlight how inadequate the Merger Consideration is to Squarespace's minority shareholders.

Discounted Cash Flow ("DCF") Analysis

In providing its opinion to the Special Committee, Centerview calculated a range of implied enterprise values for the Company using discount rates ranging from 12.5% to 14.5% to derive a range of implied values per share of Squarespace common stock of approximately $41.65 to $53.10.⁴ Yet, the Company itself determined, during a goodwill impairment test conducted in the fourth quarter of 2022, that the appropriate WACC to use in valuing itself was 11%.⁵ It appears to Glazer Capital from Centerview's own presentation that an 11% WACC would have implied a value per share of Squarespace substantially greater than $44.00.⁶

Deficient Process Favored Controlling Shareholder and Permira

Glazer Capital believes that the process that led to the Acquisition was designed to unfairly benefit the Purchasers, particularly Anthony Casalena, Squarespace's founder and CEO.  We summarize below our key takeaways and observations with respect to the background section of the Squarespace Proxy Statement (the "Background") and why it suggests to us that Squarespace's sale process was flawed.

Table 3: Analysis of Sale Process Described in the Squarespace Proxy Statement7
Takeaways From Background Section of Squarespace Proxy Statement	Glazer Capital's Observations and Interpretation
Anthony Casalena conducted at least 5 private meetings and held 2 phone calls with David Erlong, a partner at Permira during 2022 and 2023. As early as November 2023, Mr. Casalena and Permira discussed a potential acquisition of Squarespace by Permira. In early 2024, Mr. Casalena had discussions and calls with CEOs of Permira portfolio companies to discuss their general experiences with Permira as an equity investor. In January and February 2024, Mr. Casalena met individually with each of the other members of the Board to discuss Squarespace's business prospects and strategic direction, and informed them of his discussions with Permira.	Mr. Casalena appears to have developed a relationship with Permira during a two-year courtship. Their encounters, discussions and calls do not appear to have been endorsed by the board. From our perspective, we surmise that this relationship gave Permira an unfair informational and time advantage over other bidders. Mr. Casalena's choice to first inform the Board in 2024 of his encounters with Permira and to do so via separate 1 on 1 meetings with each member suggest to us a desire to control the narrative and process.
On February 13, 2024, Mr. Erlong informed Mr. Casalena that a proposal from Permira was forthcoming. Shortly thereafter, Squarespace received a non-binding indication of interest from Permira for $40.50 per share, with a provision for rollover investment by management and other existing investors. On February 14, 2024, Mr. Casalena sent the proposal to the Board. On February 22, 2024, the Board authorized the formation of the Special Committee, constituting it with Michael Fleisher, Jonathan Klein and Neela Montgomery.	The fact that Permira had sufficient information to submit an IOI prior to having had conversations with any representative of Squarespace other than Mr. Casalena or having signed an NDA further supports our suspicion that Permira was afforded a unique informational advantage over other bidders. We fail to comprehend why the establishment of a special committee far earlier in the process would not have benefitted Squarespace minority shareholders.
On March 19, 2024, Mr. Casalena indicated to the Special Committee that he wished to retain a substantial stake in Squarespace and a significant voice in its governance and control of day-to-day management. On March 26, 2024, the Special Committee determined not to contact potential strategic buyers due in part to Mr. Casalena's proposed governance terms.	From our perspective, Mr. Casalena's proposed governance terms likely made it impossible to conduct a full, fair and unbiased process, which likely would have been best suited to maximize shareholder value.
Between March 27, 2024 and March 29, 2024, Centerview initiated outreach to 7 financial sponsors in addition to Permira. On March 29, 2024, Permira executed an NDA. During April 2024, 6 of the other financial sponsors executed NDAs and 4 of them met with Squarespace. On April 12, 2024, the Special Committee set an initial bid deadline of April 26, 2024. On April 17, 2024, a summary of Mr. Casalena's proposed governance terms were made available to bidders. On April 23, 2024, Mr. Casalena met with Permira. On the April 26, 2024 bid deadline, Permira was the only party to submit a bid.	Mr. Casalena and Permira became familiar with each other during a 2-year window prior to the Acquisition, an eternity in the world of M&A processes. Other bidders had less than 1 month between NDA signing and the bid deadline. The process appears to have been managed to favor Permira as the victor and to deliver control and governance of Squarespace to Mr. Casalena. It appears to us that the other bidders lacked sufficient time, information or crucial support from Mr. Casalena to enable them to submit a bid that could compete with that of the Purchasers.

Sale of Tock

On June 21, 2024, approximately one month following the announcement of the Acquisition, Squarespace announced an agreement to sell Tock LLC, a platform serving the hospitality industry, to American Express for a price of $400 million (the "Tock Sale").

Squarespace's FY 2023 Form 10-K reports that:

• Squarespace acquired Tock in 2021 for total consideration of $425.7 million;
• Squarespace recognized a $225.2 million impairment charge for its Tock reporting unit in Q4 2022.⁸

These figures imply that Tock was sold at a 99.5% premium to its most recent publicly disclosed carrying value. Critically, however, Permira appears to have been the only prospective bidder for Squarespace to which material details regarding the Tock Sale were disclosed.

Table 4: Analysis of Tock Sale Details Described in the Squarespace Proxy Statement9
Takeaways From Background Section of Squarespace Proxy Statement	Glazer Capital's Observations and Interpretation
On April 29, 2024, after the final bid deadline had already passed, Permira revised its bid for Squarespace to $43.25 per share. On April 30, 2024, Centerview discussed the proposed Tock Sale with Permira. On May 1, 2024, the Special Committee directed Centerview to give Permira a May 9, 2024 deadline "to submit a better proposal after conducting additional due diligence, including with respect to the proposed sale of Tock LLC." On May 4, 2024, Permira was informed of the proposed $400 million purchase price for Tock. On May 9, 2024 Permira raised its bid to $44.00.	The first mention of Tock LLC in the Background occurs 4 days after the bid deadline. By this time, Permira was the only party remaining in the process. Squarespace's rejection of Permira's $43.25 bid on the basis that it did not adequately compensate Squarespace's shareholders for the Tock Sale informs us that the Tock Sale was material to Squarespace's value per share. Yet, it does not appear to us that other bidders were provided comparably material information about Tock's value or its imminent sale.

The $400 million purchase price for Tock amounts to approximately $2.65 per fully diluted share of Squarespace on a pre-tax basis (based on 150.6 million fully diluted shares).¹⁰  This represents approximately 6% of the Merger Consideration. Yet it appears that none of the bidders aside from Permira were provided sufficient disclosure regarding Tock during their due diligence.

We Intend to Vote AGAINST the Acquisition

Glazer Capital believes that the Merger Consideration is inadequate and shortchanges Squarespace's minority shareholders. From where we stand: 1) the Special Committee recommended the Acquisition based on an opinion from Centerview which strangely omitted crucial analyses and inputs supportive of a higher price per share of Squarespace and 2) the terms and price of the Acquisition were arrived at through a flawed process designed to favor the interests of the Controlling Shareholders, in particular Mr. Casalena, as well as Permira.

Finally, since the close of trading on May 13, 2024, following the announcement of the Acquisition, Wix.com Ltd. and GoDaddy, Inc., the two "selected competitors" of Squarespace singled out by Centerview in multiple presentations to the Special Committee¹¹ have seen their stock prices appreciate 25% and 20%, respectively.¹² Glazer Capital has become increasingly convinced that the approximately 15% unaffected premium offered by the Purchasers for Squarespace is inadequate when viewed in this context.

Our serious concerns about the fairness and integrity of the sales process, in addition to the insufficient Merger Consideration, lead us to believe that the Acquisition is not in the best interest of Squarespace's minority shareholders.  Accordingly, Glazer Capital intends to vote against the Acquisition and asks the Board to immediately reconsider its recommendation thereof.

Sincerely,

Paul J. Glazer
Chief Executive Officer and Chief Investment Officer
Glazer Capital, LLC

Mark Ort
Portfolio Manager
Glazer Capital, LLC

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About Glazer Capital, LLC

Glazer Capital, LLC is a New York City-based, global investment management firm founded by Paul J. Glazer. The firm began investing in 1999, specializing in investment strategies that are intended to be non-directional, market neutral, and liquid. Glazer Capital aims to achieve uncorrelated absolute returns in all market environments through its disciplined investment approach, research-driven methodology, and focus on risk management. The firm had assets under management of approximately $2 billion as of June 30, 2024.

Company Contact
Glazer Capital, LLC
info@glazercapital.com

Media Contacts
Shaina Lamb / Jeff Siegel
Dukas Linden Public Relations
glazercapital@dlpr.com

Disclaimer

This press release does not constitute an offer to sell or a solicitation of an offer to buy any of the securities described herein in any state to any person. This press release does not recommend the purchase or sale of a security. There is no assurance or guarantee with respect to the prices at which any securities of Squarespace, Inc. ("Squarespace" or the "Company") will trade, and such securities may not trade at prices that may be implied herein. In addition, this press release and the discussions and opinions herein are for general information only, and are not intended to provide investment advice.

This press release contains forward-looking statements. Forward-looking statements are statements that are not historical facts and may include projections and estimates and their underlying assumptions, statements regarding plans, objectives, intentions and expectations with respect to future financial results, events, operations, services, product development and potential, and statements regarding future performance. Forward-looking statements are generally identified by the words "expects", "anticipates", "believes", "intends", "estimates", "plans", "will be" and similar expressions. Although Glazer Capital, LLC ("Glazer Capital") believes that the expectations reflected in forward-looking statements contained herein are reasonable, investors are cautioned that forward-looking information and statements are subject to various risks and uncertainties—many of which are difficult to predict and are generally beyond the control of Glazer Capital or Squarespace—that could cause actual results and developments to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. In addition, the foregoing considerations and any other publicly stated risks and uncertainties should be read in conjunction with the risks and cautionary statements discussed or identified in the Company's public filings with the U.S. Securities and Exchange Commission, including those listed under "Risk Factors" in Squarespace's annual reports on Form 10-K and quarterly reports on Form 10-Q and those related to the Pending Transaction (as defined below). The forward-looking statements speak only as of the date hereof and, other than as required by applicable law, Glazer Capital does not undertake any obligation to update or revise any forward-looking information or statements. Certain information included in this material is based on data obtained from sources considered to be reliable. Any analyses provided to assist the recipient of this material in evaluating the matters described herein may be based on subjective assessments and assumptions and may use one among alternative methodologies that produce different results. Accordingly, any analyses should not be viewed as factual and should not be relied upon as an accurate prediction of future results.  All figures are unaudited estimates and, unless required by law, are subject to revision without notice.

Glazer Capital's funds and separate accounts currently beneficially own shares of the Company.  These funds and investment vehicles are in the business of trading (i.e., buying and selling) securities and intend to continue trading in the securities of the Company. You should assume such funds and investment vehicles will from time to time sell all or a portion of their holdings of the Company in open market transactions or otherwise, buy additional shares (in open market or privately negotiated transactions or otherwise), or trade in options, puts, calls, swaps or other derivative instruments relating to such shares. Consequently, Glazer Capital's beneficial ownership of shares of, and/or economic interest in, the Company may vary over time depending on various factors, with or without regard to Glazer Capital's views of the pending transaction involving the Company and Permira Advisers LLC (the "Pending Transaction") or the Company's business, prospects, or valuation (including the market price of the Company's shares), including, without limitation, other investment opportunities available to Glazer Capital, concentration of positions in the portfolios managed by Glazer Capital, conditions in the securities markets, and general economic and industry conditions. Without limiting the generality of the foregoing, in the event of a change in the Company's share price on or following the date hereof, Glazer Capital's funds and separate accounts may buy additional shares or sell all or a portion of their holdings of the Company (including, in each case, by trading in options, puts, calls, swaps, or other derivative instruments relating to Squarespace shares). Glazer Capital also reserves the right to change the opinions expressed herein and its intentions with respect to its investment in the Company, and to take any actions with respect to its investment in the Company as it may deem appropriate, and disclaims any obligation to notify the market or any other party of any such changes or actions, except as required by law. 

____________________

1 See Squarespace, Inc., Schedule 13E-3, filed by Squarespace, Inc. et al. with the United States Securities and Exchange Commission (the "SEC") on June 17, 2024 (the "Squarespace Schedule 13E-3"), at p. 3 of Exhibit C(X) (the "Goldman Precedent Transaction Presentation").

2 Goldman Precedent Transaction Presentation at p. 4.

3 Squarespace Schedule 13E-3, at pgs. 12 and 14 of Exhibit 16(C)(VI).

4 Squarespace, Inc., Revised Preliminary Proxy Statement, filed with the SEC on August 2, 2024 (the "Squarespace Proxy Statement"), at pgs. 51-52.

5 Squarespace, Inc. Form 10-K, filed with the SEC on February 28, 2024 (the "Squarespace FY 2023 10K"), at p. 57.

6 Squarespace Schedule 13E-3, at p. 5 of Exhibit 16(C)(VI).

7 Squarespace Proxy Statement, at pgs. 25-39.

8 Squarespace FY 2023 Form 10-K, at pgs. 69 and 86.

9 Squarespace Proxy Statement, at pgs. 25-39.

10 Squarespace Schedule 13E-3, at p. 14 of Exhibit 16(C)(VI).

11 Squarespace Schedule 13E-3, at pgs. 8 and 9 of Exhibit 16(C)(IV), p. 2 of Exhibit 16(C)(V) and p. 8 of Exhibit 16(C)(VI).

12 Source: Bloomberg, using closing stock prices on May 13, 2024 and August 13 2024.

 

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SOURCE Glazer Capital, LLC

FAQ

What is the proposed acquisition price for Squarespace (SQSP)?

The proposed acquisition price for Squarespace (SQSP) is $44.00 per share in cash.

Who is opposing the Squarespace (SQSP) acquisition and why?

Glazer Capital, owning 5.4% of Squarespace's minority shares, is opposing the acquisition. They argue that the price is inadequate, the process was flawed, and key valuation analyses were omitted from the fairness opinion.

What premium does the $44.00 per share offer represent for Squarespace (SQSP)?

The $44.00 per share offer represents an approximately 15% premium to Squarespace's unaffected stock price.

What is the value of the Tock sale announced by Squarespace (SQSP)?

Squarespace announced an agreement to sell Tock to American Express for $400 million.

How does Glazer Capital plan to vote on the Squarespace (SQSP) acquisition?

Glazer Capital intends to vote against the Squarespace (SQSP) acquisition at the upcoming special meeting of shareholders.