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Shares of e-signature specialist DocuSign (NASDAQ:DOCU) continues to move higher on buyout rumors on Friday. A Reuters report yesterday revealed two major investment firms are seeking to take DocuSign private. While DOCU stock was a massive winner during the worst of the Covid-19 crisis, its performance softened in recent years. Therefore, the move could be a win-win.
Per Reuters, Bain Capital and Hellman & Friedman are competing to acquire DocuSign, which at the time of the report featured a market value of approximately $12.5 billion. Subsequently, after the story broke, this metric jumped to around $13.1 billion. People familiar with the matter stated that the two private equity firms are among the final bidders for DOCU stock.
Significantly, the sources mentioned that the deal stands poised to be one of the biggest leveraged buyouts of this year. In addition, it’s possible that the two enterprises could join forces down the line to clinch a deal. An outcome should be revealed in the coming weeks.
Interestingly, Blackstone (NYSE:BX) — another previous buyout candidate — held talks about a possible deal with DocuSign. However, two of the sources that spoke with Reuters stated that Blackstone is no longer in contention. The alternative investment management firm declined to comment.
DOCU Stock Rising on a Potentially Sensible Deal
Based on average weekly share price information provided by Google Finance, DOCU stock reached a peak of just over $310 in September 2021. However, from November of that year onward, DocuSign has been struggling with relevance. Roughly during the same time of DOCU’s intense volatility, societal fears of Covid-19 began fading.
Unfortunately, the dynamic translated to a less intense demand for e-signatures. At the start of the crisis, the push for contactless services helped usher in a digital transformation. That’s language straight out of DocuSign’s website. However, as social behaviors normalized, the need for contactless solutions diminished, taking a huge bite out of DOCU stock.
To be fair, Fortune Business Insights noted that the global digital signature market reached a valuation of $3.92 billion in 2022. Further, the sector should grow from $5.25 billion in 2023 to $43.14 billion by 2030, representing a compound annual growth rate (CAGR) of 35.1%.
Adding to the sentiment for DOCU stock, DocuSign owns anywhere from about 68% of the market to an estimated 75%, per Deloitte. However, the company just hasn’t been able to break out of the bearish cycle post-November 2021. Therefore, a buyout could be the most logical exit for DocuSign, according to Bank of America analysts.
Why It Matters
Emphasizing the lack of confidence in DocuSign to go at it alone, analysts overall rate DOCU stock as a consensus hold. This assessment breaks down as four buys, 10 holds and four sells. Further, the average price target sits at $59, implying almost 8% downside risk.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.