UK’s Blue Prism becomes latest target of U.S. private equity. And one activist investor is not impressed

  • Blue Prism shares surged on Wednesday after it confirmed that it had entered discussions with TPG Capital and Vista Equity Partners.
  • Shareholder Coast Capital believes Blue Prism is currently undervalued and it would be a mistake to agree to a takeover at the share price. 

Robotics firm Blue Prism has become the latest in a line of British companies to attract the attention of U.S. private equity firms, but one high-profile shareholder has urged it not to sell.

Blue Prism shares surged on Wednesday after it confirmed that it had entered discussions with TPG Capital and Vista Equity Partners. However it stressed, "there can be no certainty that any offer will be made, nor as to the terms of which any offer would be made."

It comes after supermarket chain Morrisons, infrastructure group John Laing and aerospace company Cobham were all subject to transatlantic private equity approaches in recent months.

Blue Prism, one of the largest tech firms on the London Stock Exchange AIM market, uses robotic process automation (RPA) software to hire out a digital workforce to perform back office tasks for businesses. 

However, in a letter sent to Blue Prism's management team on Tuesday, seen by CNBC, shareholder Coast Capital, a notable activist investor behind opposition to FirstGroup's sale of its U.S. businesses, expressed concern about the valuation of the company. 

Coast Capital believes Blue Prism is currently undervalued and it would be a mistake to agree to a takeover at the share price. 

"As you are well aware, the Enterprise Value of Blue Prism PLC is currently valued at approximately three times forward revenues – an 80% to 90% discount to the company's peers including UiPath, Appian, WorkFusion, Automation Anywhere, etc.," the letter from Coast Capital said. 

"Were a buyer to pay a premium of 100%, the share price would still be materially lower than its intrinsic value, and well below where the shares were trading as recently as January 2021." 

Coast Capital CEO James Rasteh said Blue Prism faced a number of issues — such as product gaps in its portfolio, its position on London's junior stock exchange and its geographical distance from many key clients — but that these could be overcome. He said Coast had been working with sector experts to devise an operational improvement plan to boost revenue growth and increase Blue Prism's stock value. 

"Furthermore, we note that the team at Blue Prism PLC (including management and board) has built and maintained the world's premier unattended automation software product, with an extremely valuable client base of 2,000+ large-scale enterprises," Rasteh said.  

"Even at its current worst, the company enjoys an enviable reputation as a best-in-class performer, and as a result remains a leader in its rapidly growing and very profitable industry. Now is not the time to throw in the towel!" 

Blue Prism declined to comment. TPG Capital and Vista Equity Partners were not immediately available for comment when contacted by CNBC. 

'Reverse activism' 

Where Coast Capital publicly pushed for management changes at FirstGroup, Rasteh told CNBC in an email Thursday that the firm's engagement with Blue Prism was "the reverse of activism," claiming it planned to work with management to implement the required operational changes. 

Coast Capital holds a stake of just under a 3% in Blue Prism. Jupiter Fund Management, which declined to comment, is its largest shareholder with a 7.49% stake, according to data from Refinitiv Eikon. 

The company's stock surged as much as 39% on Wednesday, but remains down by around 30% for the year. 

"The CEO, Jason Kingdon, is clearly a visionary in the high tech industry in the U.K., and has not been given long enough to affect the HR changes and operational improvements which can and will transform Blue Prism," Rasteh said.

Kingdon was an early investor in Blue Prism and became its chairman and CEO in April 2020.

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