Squarespace to Go Private in $6.9B All-Cash Transaction with Permira
Squarespace’s $6.9B all-cash deal to go private with Permira is prompting scrutiny of both the relatively modest takeover premium and the broader role of private equity in tech. Commenters examine why acquisition offers often land around a 30% “control premium” over market price—citing legal precedent, board fiduciary risk, and market norms—while expressing concern that PE ownership typically brings price hikes, heavy cost-cutting, and product stagnation. The timing, immediately after Google Domains customers were migrated onto Squarespace, has also alarmed domain holders who now face lock-in and are weighing exits to alternatives like Cloudflare and Porkbun.
Control Premium and the “30% Rule”
- Many comments focus on why M&A deals often happen at ~30% above market price.
- Explanations given:
- “Control premium”: buying full control is worth more than marginal public-market shares.
- Delaware case law (Doft, 2004) is cited as embedding ~30% as a standard adjustment in appraisals; boards fear lawsuits if they accept much less.
- Market convention and “tipping-like” norms: once 30% is standard, lower looks suspicious, higher looks overpaying.
- Some criticize these as circular (“it is what it is”), but no rigorous alternative model emerges.
Why Squarespace Attracts Private Equity
- Squarespace has >$1B annual revenue, near-zero net income, but strong operating cash flow.
- Very high sales/marketing spend suggests room to cut and turn it into a cash machine.
- PE playbook discussed: reduce headcount, cut “R&D” and marketing, raise prices, slow innovation, possibly offshore support/engineering.
- Lock‑in and migration cost (for both hosting and domains) make price hikes feasible.
- Founder’s multibillion-dollar cash-out is noted; some see it as “selling the pig with lipstick.”
User and Domain Owner Reactions
- Many came to Squarespace involuntarily via the Google Domains sale.
- Anger at timing: transfers completed days before this deal, triggering a 60‑day transfer lock.
- Strong migration intent to registrars like Cloudflare and Porkbun, particularly if prices rise.
- Worries about data sharing across the acquirer’s portfolio and future upsell/ads.
Debate on Private Equity’s Role
- One camp: PE “gut-and-strip” — load on debt, slash staff and quality, hike prices, sell or bankrupt; examples like Red Lobster, Sears, Toys“R”Us mentioned.
- Other camp: PE often improves poorly run firms, focuses on sustainable profitability once growth stalls; Dell and Hilton cited as successes.
- Research referenced: LBO targets tend to show higher productivity but also more job destruction and slightly lower earnings.
- Consensus: outcomes vary; public perception is driven by high-profile failures and visible layoffs.
Broader Market and Web Implications
- Discussion of shrinking number of public companies, heavier IPO regulation, and rise of PE as main buyer.
- Concern that public markets no longer share upside with ordinary investors; “billionaires funding billionaires.”
- Some see this as an opportunity to:
- Build new Squarespace competitors.
- Return to a more “web 1.0” style: self‑hosting, small personal sites, federated social tools.
- Others argue centralization, user skill gaps, and platform power (Google/social networks) make a broad web‑1.0 revival unlikely.
Knock-on Effects
- Anticipation that Squarespace’s large ad spend (notably podcast/YouTube sponsorships) may shrink if growth marketing is cut.
- Expectation of price increases and reduced support/feature velocity, especially for small-business customers.