What's Next for SAS? (Again)
Eleven years later, little has changed.
Eleven years ago, I published this post. Summarizing the key points:
SAS is a leader in analytic software. The company is privately held. Founder and CEO Jim Goodnight owns a controlling interest.
Goodnight is 82 years old. His children aren’t engaged in the business. That means SAS faces a dual transition of management and ownership.
SAS flirted with an IPO in 2001. Since then, Goodnight has declined generous acquisition offers, ostensibly because he thought the company was worth more than prospective buyers offered to pay.
Goodnight behaves like he does not want to sell. That’s his right. He built the company and can do whatever he wants with it. He’s neither the first nor the last founder to hang on too long.
Then and now, Goodnight has four options:
Donate his equity to a charitable trust, similar to the Hershey Foundation. That will preserve the company as he built it, for better or worse.
Sell the company to its employees.
Sell the company to a corporate buyer.
Sell the company to private equity investors.
Options two, three, and four expose the company to a restructuring. An employee-led buyout requires financing; lenders don’t care about rock collections and goat farms unless they produce revenue. The same is true for corporate buyers or P/E firms.
It is unlikely that public companies like Microsoft or SAP would consider buying SAS unless the company restructures before the transaction. Public companies don’t want to buy headaches.
Microsoft does not need a rock collection. They already have Microsoft Research.
What about an IPO? Eleven years ago, I did not think an IPO was a viable option for SAS. Wall Street values topline growth, not profitability. Companies that lack a credible growth story do not survive as public companies. Just ask Alteryx or TIBCO.
Today, SAS is even less attractive as a public company. In 2013, it could boast a steady 10% annual revenue growth—not a unicorn, but respectable. Since then? Flat as a pancake.
Meanwhile, the industry grew by double digits.
The numbers may be even worse. SAS used to report an exact revenue figure each year, but recently, the company has avoided clear disclosures. SAS says it “continues to record more than $3 billion in annual sales” and recorded 8% sales growth in 2023, but with the disclaimer that metrics “include amounts and percentages determined on a management reporting basis, which may differ from GAAP reporting.”
The S-1 will be lit af.
Wall Street isn’t begging for zero-growth companies, and it doesn’t care about profitability. Just ask Snowflake. Equity investors want capital gains, not dividends. Profitable slow-growth companies finance through private equity or debt, not the public stock market. It’s all about tax efficiency.
Three years ago, in July 2021, SAS announced a plan to “get IPO ready” for an IPO in 2024. This was right after SAS rejected an acquisition offer from Broadcom. Last fall, Goodnight announced that the IPO was postponed to 2025 “to take care of some housekeeping.”
Recently, Goodnight said the company still isn’t ready.
I chuckled when I read this. I’ve worked for three companies that completed an IPO, and none took three years to prepare. SAS has had years to prepare. A former SAS top executive tells me he bet a case of champagne that the IPO will never happen. It’s a great talking point, but I don’t think he can find anyone who will take the other side of the bet.