Kneat.com Inc., a Toronto-listed software company, is facing significant resistance from one of its major institutional shareholders in response to Thoma Bravo LP’s proposed $650 million acquisition. PenderFund Capital Management, which holds approximately 9% of Kneat’s shares, has announced its intention to vote against the deal, arguing that the timing is detrimental given the current turmoil in the software-as-a-service (SaaS) sector.
Institutional Shareholder Voices Discontent
David Barr, the CEO of PenderFund, expressed his disappointment regarding Kneat’s decision to engage in a strategic sale amidst a sharp decline in SaaS valuations. “It’s disheartening that the board would initiate this process during a massive sell-off,” Barr stated in an interview with The Globe and Mail. PenderFund manages the Pender Small Cap Opportunities Fund, with Kneat as its leading investment. He emphasised, “We consider Kneat to be one of the premier public software companies in Canada. We would prefer to support its growth as a public entity for the next five years rather than see its potential handed over to a U.S. private equity firm.” Barr suggested that there might be enough dissent among shareholders to prevent the deal, which requires a two-thirds majority for approval.
The Offer Details and Market Context
Kneat, which is primarily managed from Ireland under CEO Edmund Ryan, confirmed on Monday that it had accepted Thoma Bravo’s offer of $6.50 per share. This valuation represents a 40% premium over the stock’s closing price on May 8, prior to the announcement of a strategic review. While the offer exceeds the one-year price target set by four out of five analysts who monitor the company, it falls short of Kneat’s earlier trading price, which exceeded $7 on several occasions in early 2025.
The company’s software is critical for pharmaceutical manufacturers, assisting them in tracking and validating data for quality control and regulatory compliance. However, the broader market context presents a challenging backdrop. Subscription software company valuations have plummeted to their lowest levels in over a decade, following a downturn triggered by the end of the COVID-19 pandemic tech bubble and compounded by rising interest rates and competition from generative AI technologies. This situation has led to fears among investors regarding the viability of established software vendors, a phenomenon referred to as the “SaaS-pocalypse.”
Opposition from Other Investors
PenderFund is not alone in its opposition to the acquisition. Private investor Nick Achkarian, whose family holds approximately 150,000 shares in Kneat, also voiced concerns about the deal. Describing Kneat as a premium company deserving of a higher valuation, Achkarian noted, “The company is clearly undervalued, and Thoma Bravo has the capacity to offer more.” He has been leveraging social media to rally support among fellow investors and intends to compile a presentation outlining his views, which will be made publicly accessible.
In contrast, Kneat’s board has unanimously endorsed the acquisition, with its members collectively owning 21.9% of the company’s shares and pledging to vote in favour of the deal. Certain board members are also entitled to roll a portion of their equity into shares of the future private entity, allowing them to benefit from any future appreciation—a privilege not extended to other shareholders, who would receive cash instead. A vote on the acquisition is scheduled for July 30, with the record date set for June 25.
A Shifting Market Landscape
The software sector has seen a significant shift, with many companies experiencing a downturn that has lasted for over two years. Despite this, there are signs of recovery; Jamin Ball, a partner at technology investment firm Altimeter Capital, recently revealed that the first quarter of this year marked the best growth in new annual recurring revenue for the software industry in five years. Thoma Bravo has previously capitalised on similar situations by acquiring Canadian firms that have suffered during market downturns, including Magnet Forensics and Absolute Software.
As Kneat navigates this tumultuous landscape, the outcome of this takeover bid could set a precedent for how software companies are valued and acquired in the current economic climate.
Why it Matters
The resistance from PenderFund and Achkarian represents a critical moment for Kneat.com, highlighting the tensions between institutional investors and company management in times of market volatility. The outcome of this vote will not only impact Kneat’s future but may also influence the broader sentiment towards acquisition strategies within the tech sector. As stakeholders grapple with the evolving landscape of software valuations, the decisions made during this pivotal period could shape the trajectory of Canadian tech firms for years to come.
