Box/KKR: private equity group is not quite a white night

Aaron Levie’s 2.4m followers on Twitter are fan of his musings on the quirks of life as founder, chief executive and self-proclaimed ‘lead magician’ of online data storage company Box. His shareholders are less entertained. Since a buzzy debut in 2015, Box’s share price has been mostly stagnant.

Despite a strong run for software companies, Box has had to contend with activist fund Starboard Value. The boardroom dynamic just grew more complicated. On Thursday, private equity firm KKR said it would buy more than a tenth of Box via $500m worth of convertible preferred stock. Levie and the Box board decided not to sell the company outright and keep faith in an aggressive turnround plan.

Box describes itself as a provider of “content cloud management”. It is basically a software as a service (SaaS) product that allows office workers to work together securely online. In early years, annual revenue rose in excess of 30 per cent. But heavy marketing costs drove that expansion and operating losses were vast. The company’s growth has now slowed, while profits have steadily materialised. 

The problem is that new entrants have since seized the fancy of the market. Box has a sub $4bn equity value. DocuSign, which allows documents to be signed virtually, went public in 2018 and has a market capitalisation exceeding $40bn. Microsoft and Google remain trillion-dollar rivals.

A few months ago, Slack Technologies threw in the towel and took a $28bn offer from Salesforce. Box could be purchased for a fraction of that. Yet Levie is committing his company to a revenue growth rate in the teens by 2024, while hitting an operating margin of as high as 27 per cent — nearly double where it is now.

Selling out would have been an easy choice. The arrival of KKR and its money is a serious vote of confidence. But Box now features a voracious hedge fund, Starboard, and a legendary private equity group. Levie may find he has less time for tweets in the coming months.

If you are a subscriber and would like to receive alerts when Lex articles are published, just click the button “Add to myFT”, which appears at the top of this page above the headline.