Here's Why Ellie Mae Stock Is Up More Than 20% Today
What happened
Mortgage technology specialist Ellie Mae (NYSE: ELLI) has agreed to be acquired by Thoma Bravo, a private equity firm. As of 11:52 a.m. EST, shares of the company were up 21%.
So what
The acquisition is an all-cash transaction, and upon the closing of the deal, Ellie Mae shareholders will receive $99 in cash for each share of stock they own. This is a premium of about 21% to the previous day's close, after an already strong start to 2019, although it's still well below the 52-week high of $116.90.
It may seem odd that the acquisition price of Ellie Mae is $99 per share and the stock spiked to slightly higher than $99 following the announcement. Generally speaking, acquisition targets in these situations will spike, but to a price somewhat lower than the buyout price in order to compensate for the regulatory risk that the deal won't get done.
To be clear, this deal is subject to approval by Ellie Mae stockholders, as well as the approval of regulatory authorities.
The reason for the extra boost in price is that the deal also includes a 35-day "go-shop" provision. Essentially, this means that Ellie Mae can actively solicit competing offers, and will have the right to terminate its agreement with Thoma Bravo if it can find a superior offer. In short, the shares are pricing in the chance that someone else will swoop in and offer even more for Ellie Mae.
Now what
The deal is expected to close during the second or third quarter of this year. Unless Ellie Mae receives a better offer within the next 35 days, there shouldn't be any major roadblocks to getting the deal done.
10 stocks we like better than Ellie MaeWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Ellie Mae wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of January 31, 2019
Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ellie Mae. The Motley Fool has a disclosure policy.