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Progress Software (PRGS -2%) is heading lower after announcing a big acquisition. This supplier of enterprise software for creating and deploying business applications said it will acquire ShareFile, a business unit of Cloud Software Group. The price tag is $875 mln, which is quite sizeable for a company with a $2.5 bln market cap. Progress will use a combination of cash and its existing revolving credit facility. The deal is expected to close within Progress' fiscal year, which end November 30.In addition to the ShareFile deal, Progress also provided some upbeat guidance. It said it expects Q3 (Aug) adjusted EPS and revenue to both be within or above high end of prior guidance.

• Perhaps a slight negative was Progress also saying it plans to suspend its dividend as of the closing of the ShareFile acquisition. Instead it would rather use that money to pay down debt and increase liquidity for future M&A and for share repurchases. Progress intends to de-lever quickly as it has with previous acquisitions.
• ShareFile provides a collaboration and workflow platform, which allows for document-centric collaboration with automated workflows, client portal, secure sharing and linking of files and integrated eSignature. It uses Gen AI to provide a simple guided self-service user experience. It also uses Gen AI to automatically summarize documents as well as create Q&A related to those documents.
• Primary competitors of ShareFile are Box (BOX) and Dropbox (DBX). However, Progress believes ShareFile offers a much richer workflow and collaboration capabilities as well as client portal and Gen AI capabilities. These features make it much more competitive in the market and gives it an edge when competing, especially for companies that are focused on compliance as a big issue.
• Progress says the deal will significantly expand its digital experience portfolio. Also, ShareFile serves a wide range of industries, including business services such as legal and accounting, financial services, healthcare, construction and real estate. It also has a large and loyal customer base. When the deal closes, ShareFile is expected to add more than $240 mln in annual revenue and bring Progress ARR to well over $800 mln and annual revs to nearly $1 bln.
• Progress sees an opportunity to leverage its existing sales support and operating platform, which it believes provides a clear path to bringing operating margins up to its 40% target. Progress also believes the deal is highly attractive in terms of its acquisition multiple (3.6x sales) and given the cash tax advantage of an asset purchase transaction.

Investors do not seem overly enthusiastic about the deal. We suspect investors are maybe not excited about a file sharing addition even if it's at an attractive multiple and even is ShareFile offers enhanced features. There are also integration risks given how large this deal is relative to Progress' current market cap. Also, that the company chose to suspend its dividend is another sign of how large this deal is and that carries some risk. Progress reports earnings on September 24, so we should get more color then.