Just weeks after Kinaxis announced its CEO and top sales executive will soon be leaving their jobs, a major shareholder is calling for the company to be put on the auction block.
In a letter dated Monday, Daventry Group managing partner Andrew Dantzig urged the Kanata-based company’s board of directors to “immediately formalize a process to explore a sale” with the aim of bringing in new owners to oversee the hiring of the next chief executive.
“We believe Kinaxis is a highly strategic asset that is nonetheless dramatically undervalued at its current share price, where it trades at less than half the multiples of both its public and private company peers,” the document says.
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“We believe this gulf in performance is due entirely to Kinaxis’s poor execution in recent years, which we believe has been self-inflicted under the supervision of the current Board.”
The bombshell letter comes less than two weeks after Kinaxis said CEO John Sicard and chief sales officer Claire Rychlewski would exit the firm before the end of the year. The company’s shares plummeted nearly 15 per cent after the C-suite shakeup was announced, but have since recovered most of their value and now sit at about $150 on the Toronto Stock Exchange, up more than five per cent on the year.
Still, Daventry, which owns about 1.4 per cent of Kinaxis, made it clear it’s not impressed with the company’s financial performance since it first became an investor in the firm in March 2021.
It noted Kinaxis’s share price has fallen nearly 20 per cent since the end of 2020, while shares of competitors such as Manhattan Associates, Descartes Group, and SPS Commerce have risen between 80 and 150 per cent over the same period.
Kinaxis sells “some of the stickiest software in the world,” the New York-based investment firm said, adding that customers and partners refer to Kinaxis’s products as “the gold standard in supply chain planning.”
Yet Daventry argues that the Kanata firm has failed to fully capitalize on growing demand for supply-chain management products in a post-COVID world.
Eyeing ‘healthy premium’ from sale
“Painfully for shareholders, we believe Kinaxis’s issues have been entirely self-inflicted and avoidable,” the letter says.
Daventry says it believes putting Kinaxis on the block would trigger “an enormous amount of interest from both strategic and financial acquirers that could allow Kinaxis to immediately close the valuation gap” with its peers.
“Given that the Company’s issues are self-inflicted and execution-related, not product or market-related, we believe potential acquirers would pay a healthy premium for Kinaxis as a scarce high-quality strategic asset,” the letter says.
The investment firm also argues that taking Kinaxis private would give it more flexibility to scale “outside the glare of the public markets,” while a new owner “with greater operational expertise would likewise benefit the company’s long-term interests.”
In a statement issued Monday afternoon, Kinaxis said it “routinely engages with shareholders and welcomes their feedback,” adding it met with Daventry Group representatives on Aug. 28, the day after it announced Sicard and Rychlewski would be leaving the firm.
“Kinaxis is disappointed Daventry elected to publish its letter with demands for a sale process, rather than continue to discuss its views privately with the company,” the statement said.
The company said the board of directors will review the letter but “does not intend to comment further unless and until the Board has approved a specific course of action and/or the Company has determined that further disclosure is appropriate or required by law.”
Kinaxis officials did not respond to requests for comment from OBJ on Monday.
Daventry contends that Kinaxis management overestimated its potential revenue growth as demand for its software soared at the height of the pandemic in 2021, when supply chains were snarled around the world.
But the company’s growth began to slow down in early 2023, the letter says, with net new annual recurring revenue growth actually declining the first half of the year compared with the same period in 2022.
Growth continued to slow this year, the letter adds, a situation Daventry blamed on “poor execution.”
‘Shocking amount of turnover’ in C-suite
The firm said that until recently Kinaxis had only a handful of sales staff dedicated to growing revenues among existing customers even though “cross-selling and upselling to existing customers is the most efficient way to win new business.”
“Kinaxis’s management has apparently unsuccessfully attempted to ramp up this area in recent quarters, but the fact that there was no structure in place to begin with reflects a complete lack of understanding of how to scale a software business and a shocking lack of supervision from the current Board of Directors,” the letter adds.
The firm also argues that Kinaxis launched an “aggressive investment program” that drove down its EBITDA margins even as its “projected acceleration was not materializing.”
In addition, Daventry argued the Kinaxis board “failed to prudently build a strong executive team around (Sicard) during his tenure as CEO.”
Beyond Sicard and Rychlewski’s exit, the firm also pointed to what it called a “shocking amount of turnover” in Kinaxis’s senior executive suite in recent months, including the departures of former president Paul Carreiro in April and chief strategy officer Anne Robinson and chief marketing officer Margaret Franco in February.
Most recently, former vice-president of key accounts David Anderson, who led Kinaxis’s customer expansion team, left the company in August.
“Allowing this Board to hire a new CEO would be a major mistake, and our experience shows that any rebuild will take years,” Daventry said. “This is not as simple as making a few hires; rather, we believe scaling Kinaxis will require rebuilding the Company’s go-to-market organization.”
Founded in 1984, Kinaxis is a global leader in software that helps manufacturers keep track of their supply chain systems in real time. Its customers include Procter & Gamble, IBM, Lockheed Martin and Volvo.
Since Sicard took over as chief executive in 2016, Kinaxis’s annual revenues have quadrupled to more than US$400 million, while the company’s headcount has grown more than 400 per cent and its market valuation has tripled as demand for its platform has skyrocketed.
But the firm’s share price has stagnated over the past year amid economic headwinds that have slowed sales cycles.
In May, Kinaxis announced it was laying off six per cent of its workforce in a restructuring aimed at funnelling more money into R&D, marketing and other areas.
Last month, the company said its revenues for fiscal 2024 would likely come in at the lower end of its projections. In a news release on Aug. 27 announcing Sicard’s retirement, Kinaxis reaffirmed its most recent revenue predictions and said it is “shifting its focus from building to scaling.”