Firm: BlackLine Inc (BL)
Enterprise: BlackLine supplies monetary accounting options delivered primarily as Software program as a Service (SaaS). The corporate’s options allow its prospects to handle numerous features of their crucial processes, together with monetary shut, intercompany accounting, invoice-to-cash, and consolidation. BlackLine’s cloud-based options embrace account reconciliations, transaction matching, process administration, journal entry, variance evaluation, consolidation integrity supervisor, compliance, BlackLine money software, credit score and danger administration, collections administration, disputes and deductions, workforce and process administration, AR intelligence, intercompany create performance, intercompany processing, and netting and settlement. These options are provided to prospects as scalable options that assist crucial record-to-report and invoice-to-cash processes.
Inventory Market Worth: ~$3.16B ($53.08 per share)
Activist: Engaged Capital
Possession: 2.02%
Common Value: n/a
Activist Commentary: Engaged Capital was based by Glenn Welling, a former principal and managing director at Relational Buyers. Engaged is an skilled and profitable small-cap investor and makes investments with a two-to-five-year funding horizon. Its type is holding administration and boards accountable behind closed doorways. Engaged has a mean return of 20.56% versus 17.83% for the Russell 2000. Of the agency’s 39 previous activist campaigns, 9 of them have been at corporations within the info know-how sector.
What’s occurring
On Oct. 30, 2025, Engaged despatched a letter calling on the BlackLine’s board to right away interact monetary advisors and proactively run a strategic alternate options course of following renewed acquisition curiosity from SAP SE. Practically a month later, Engaged issued a so-called 220 Demand letter requesting entry to board and strategic committee data associated to all inbound acquisition curiosity, together with a reported $66 per share provide from SAP SE on June 18, 2025. Earlier this month, Engaged introduced that it plans to appoint the next 4 director candidates for election to BlackLine’s board on the 2026 Annual Assembly: (i) Christopher Hetrick, director of analysis at Engaged Capital; (ii) Christopher Younger, former head of contested conditions at Jefferies; (iii) Christopher Hallenbeck, former senior vice chairman at SAP SE; and (iv) Storm Duncan, founding father of technology-focused M&A advisory agency Ignatious.
Behind the scenes
BlackLine supplies monetary accounting options delivered primarily as Software program as a Service (SaaS). This can be a very prototypical enterprise software program enterprise, characterised by excessive gross margins (80%) and sticky choices which might be important for big enterprises. Its largest of those purchasers is SAP SE, with whom BlackLine has a strategic partnership that contributes roughly 30% of the corporate’s income. Traditionally, the enterprise was centered on development, and rightfully so, because it was compounding income at over 20% yearly for a few years, and the inventory worth grew together with that success. By the top of 2020 BlackLine was buying and selling round $133, and Marc Huffman, who led the corporate by way of the worldwide pandemic, was promoted from president to CEO, changing founder Therese Tucker who took on the position of government chair of the board. Nevertheless, put up Covid, development started to decelerate, margins didn’t come up meaningfully to compensate, and the inventory fell accordingly, buying and selling as little as roughly $61 in December 2022.
BlackLine was rumored to have been thrown a life raft in 2022, when Clearlake Capital, a non-public fairness agency identified for taking positions in choose know-how corporations as a prelude to an acquisition provide, took a roughly 9% public place in BlackLine. There was additionally hypothesis that this growth piqued the curiosity of SAP. This appeared like excellent timing: BlackLine’s hyper development had severely slowed and multiples within the house have been as excessive as ever. It’s onerous to know what kind of discussions go on in a boardroom, however an acquisition by no means occurred. In March 2023, Huffman was changed when Tucker returned to the corporate in a co-CEO construction with former Deloitte guide Owen Ryan (till October 2025 when he was made sole CEO). Since Tucker’s return, development has continued to say no to excessive single digits and whereas margins have improved modestly, the corporate’s inventory is down one other 24%. Regardless of all of this, historical past repeated itself when it was not too long ago reported that SAP made a proposal to accumulate BlackLine in June, this time for $66 per share, an over 30% premium to the 60-day buying and selling common on the time. On the time, the corporate’s development charge was additionally a lot decrease than it was in 2022, and trade multiples have compressed considerably. BlackLine, regardless of creating no worth in public markets during the last a number of years, reportedly rejected the strategy.
This refusal is what prompted Engaged Capital to ship a letter calling on the BlackLine board to right away interact monetary advisors and proactively run a strategic alternate options course of following renewed acquisition curiosity from SAP. Engaged shouldn’t be advocating for a sale of the corporate at any worth, nor does the board have a authorized responsibility to have interaction each acquisition provide. However conscientious shareholders actually have the precise to query how a board addresses a possible materials transaction, notably once they really feel the board shouldn’t be appearing in the perfect curiosity of shareholders. Activist traders like Engaged don’t view this with no consideration however an obligation. So, Engaged is asking the board to guage the SAP provide and weigh it towards some other provides and on a risk-adjusted foundation towards a standalone path. This request is affordable below nearly any circumstances, however much more so when the potential acquirer is the corporate’s most essential enterprise relationship. Whereas SAP stands out as the most obvious associate, and sure the one finally keen to pay the largest premium (estimated to be within the mid-70s). Given their current strategic partnership, BlackLine meets the profile of a really perfect match for personal fairness. With steady reoccurring income and modest development, the worth right here is all within the margins, and PE corporations have persistently demonstrated their potential to construct software program companies with 20% EBITDA margins, like BlackLine, and broaden them upwards of 40% as soon as personal, similar to Vista/Blackstone at Smartsheet and Francisco Companions/TPG at New Relic. Notably, Clearlake Capital continues to personal a 9.6% place in BlackLine. The agency has taken comparable positions in corporations like Cornerstone OnDemand, which it acquired in 2021, and Blackbaud, which rejected Clearlake’s takeout provide in March 2023 after which once more in 2024.
Quite a bit has occurred since Engaged first introduced this thesis final October. Shortly thereafter, BlackLine disclosed that it has maintained an unbiased strategic committee of the board for greater than a 12 months, with members together with David Henshall, who’s serving as chairperson, Greg Hughes and Tom Unterman. Notably, Henshall has a historical past of getting corporations bought as a director, together with New Relic when it was engaged by Engaged. Following this announcement, Engaged issued a 220 Demand letter to the corporate requesting entry to board and strategic committee data associated to all inbound acquisition curiosity, together with a reported $66 per share provide from SAP SE on June 18, 2025. Engaged expressed considerations concerning the disclosures across the firm’s strategic committee, noting that BlackLine solely not too long ago revealed the committee’s existence and has nonetheless not disclosed key info round it, together with when it was shaped, its function, the scope, its authority and whether or not it has retained advisors. Earlier this month, Engaged introduced that it plans to appoint the next 4 director candidates for election on the firm’s 2026 Annual Assembly: (i) Christopher Hetrick, director of analysis at Engaged Capital; (ii) Christopher Younger, former head of contested conditions at Jefferies; (iii) Christopher Hallenbeck, former SVP at SAP SE; and (iv) Storm Duncan, founding father of know-how -focused M&A advisory agency Ignatious.
When assessing Engaged’s possibilities of success in a proxy combat, there are a number of dynamics to contemplate. First, in late December, Unterman introduced that he won’t stand for re-election as a member of the board on the firm’s 2026 Annual Assembly. His impending departure creates each a board emptiness in a seat up for election in 2026, so at worst for Engaged, will probably be operating its slate of 4 towards three incumbents and a brand new nominee. Second, Engaged will probably get the assist of Clearlake (9.6%), one of many firm’s largest shareholders. Third, there are indicators of shareholder discontent, as CEO Ryan acquired over 20% withhold votes final time he was up for election. Lastly, and most important, one of many 4 administrators up for election is founder Therese Tucker. If she sees the smallest signal of being ousted from the corporate she based, it might result in a fast settlement or a sale of the corporate. BlackLine added two new administrators in June and July of 2025, which the corporate will undoubtedly argue is proof of fine company governance and board refreshment. Nevertheless, these administrators are within the class up for re-election in 2027, and good company governance would dictate that they’re voted on within the 2026 election so to not be on the board for 2 years with out shareholder approval. That is one thing we used to see extra of and definitely won’t see amid a proxy combat. Lastly, you will need to be aware that one of many administrators up for election this 12 months is Scott Davidson who was appointed to the board final 12 months as a part of the Scalar Gauge settlement. By concentrating on him, Engaged can not essentially depend on Scalar Gauge’s assist, however that agency solely owns a 1.15% stake.
Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist investments.
